STRAMA-OKAY-NA-QSPM.docx

Introduction

COMPANY BACKGROUND A.

The Philippine Agriculture Sector The agriculture in the country has remained to be one of the major contributors to

economic growth of many countries in the Asia-Pacific region. More than 70% of the country’s population is dependent on agriculture. Despite the low priority that this sector has been given in the past in terms of budgetary resources, it continuously provided income and livelihood to millions of farmers and their dependents. This attaches the high priority of transforming agriculture into a modern, dynamic and competitive sector. A sustained expansion of the national economy requires growth in the agricultural sector in the country.

B.

Nature of Business Agrinurture started as a trader of post-harvest agricultural machineries, which aimed to

help improve the productivity and income of rural Filipino farmers. The company was formerly recognized as Mabuhay 2000 Enterprises, Inc. and eventually diversified into various agrocommercial businesses and became one of the country’s top fresh mango exporters to world markets. AgriNurture serves the fresh needs of the leading retail & key institutional accounts in the country, and also supplies of home grown fruits such as banana, sweet pineapple and papaya to consumers in the Greater China Region, Japan, Korea, and the Middle Eastern, European, and North American Regions. The company engages in manufacturing and distribution of fruit beverages and puree, dried fruit snacks, processed fruit mix, frozen fruits & vegetables, dairy and rice products.

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C.

Company Structure AgriNurture consists of six divisions in order to perform and produce good quality

agricultural products. These are: Farming, Export, Local Distribution, Foreign Trading, Retail, and Others. For the Farming/Farm Management Group: The farming group engages in commodity such as rice and corn and high value crops production, joint venture farming and contract growing. Agricultural goods produced by the Farming Group are supplied to the Distribution and Export Groups. Aside from fruit and vegetable production, the Farming Group is also engaged in the distribution of farm inputs such as seeds, fertilizers, pesticides, as well as greenhouses and equipment.

For the Export Group: The Company’s Export Group is in charge of looking for markets abroad as well as sourcing the best quality produce possible to satisfy its growing number of clients. It is considered to be the top dollar earner of ANI by exporting all kinds of fruits, vegetables and other agro products but its main export products are fresh banana, fresh mango and coconut water. For the Local Distribution Group: ANI distributes agricultural products under the “FCA” (Fresh Choice Always) brand. They supply fresh vegetables as in-house brands of various supermarkets.

The Distribution Group intends to boost revenues through new and innovative distribution methods such as direct selling approach to address consumers’ and institutional

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buyers’ need for fresh produce amidst problems on lack of proper storage. ANI also intends to take its distribution to a global level. It aims to enter the Australian, European and US markets. For the Foreign Trading Group: As for international distribution, this activity has been undertaken by ANI with the support of Hansung Agro Products Corp., and Sunshine Supplies International Co., Ltd. ANI together with these companies sell and distribute agricultural and other commodities in Hong Kong, Macau, China, Japan, Korea, Australia and Europe.

For the Retail Group: The establishment of the Retail Group completes ANI’s strategy of integrating Retail and Franchise into its portfolio of services in line with its vision of becoming a global leader in providing nutrition from farm to plate. The direct and indirect subsidiaries of the company under the retail group are: a) The Big Chill, Inc. and b) Heppy Corp. AgriNurture, Inc. owns 80% of the outstanding capital stock of The Big Chill, Inc., while wholly owns Heppy Corp.

Foreign Subsidiaries

In line with the plan for the global re-organization of the ANI Group of companies for more streamlined and efficient operations, a number of foreign subsidiaries have been established. The Company is currently in the process of implementing the previously approved global re-organization in accordance with the following plan and goal:

At present, the subsidiaries in the ANI Group of Companies are in the process of amending their Articles of Incorporation in line with the foregoing global re-organization plan.

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FIGURE 1. AgriNurture, Inc. Global Re-Organization Plan, 2013

D.

Vision, Mission, and Values AgriNurture Inc. envisions being a leader globally in providing nourishment from farm to

plate. It has different objectives such as: (a)

supplying quality but affordable goods and services,

(b)

applying modern technologies to innovate operations and productivity,

(c)

enhance stakeholders’ value;

(d)

promote advocacies for environmental and social upliftment and;

(e)

foster national pride.

The company also has corporate values and philosophies which are: (a)

integrity – being honest and fair in every course of action and not compromising ethical business practices,

(b)

teamwork – communicating, trusting and respecting each and every individual,

(c)

care for people – respecting, coaching and giving recognition to each other.

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Chapter II

STATEMENT OF THE PROBLEM A.

Background of the Study AgriNurture, Inc. mainly focuses its operations through the local and international

production and distribution of Cavendish bananas, Carabao mangoes, coconut water and other products such as rice grains, pineapple, papaya, etc. allocated for its other sub-products.

Others; 10%

Coconut; 20% Cavendish Banana; 50%

Carabao Mango; 20%

In view of these facts, the researchers settled for the prime revenue drivers as the focus of the paper with all the relevant data from these products, as well as other material data such as the actual and forecasted rates of the GDP, inflation and the like.

B.

Purpose of the Study The purpose of this study is to develop a strategy for AgriNurture, Inc. in order to

improve, compete and forecast the possible outcomes that the company could embark on with their future needs despite the threats that are expected to arise in the future. The purpose of the study is to answer the following questions:

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1. What causes the constant decrease in the net profit despite the big share of increasing revenues? bakit hindi macover up yung net income losses The researchers chose the company based on the following factors: a) the availability and willingness of the company to share its information such as financial statements and company background and; b) the significance of the products the company offers to its customers. C. Scope and Limitation

The scope of this paper mainly focuses on AgriNurture Inc. and its Subsidiaries. This business line permits the production and processing of different agricultural products. This process overall starts from farming, manufacturing, and distribution down to retail and franchise division until the export group. The paper emphasizes on the company’s prime revenue drivers – Cavendish bananas, Carabao mangoes, and coconuts, and the components that have a substantial effect on its revenues. This will be discussed further in the Industry Analysis section. Recommendations and solutions are taken in consideration of the revenue management of the company and the strategies of international companies that could help the company raise its revenues. The amount of the data to the financial performance of the players is limited to the audited financial statements from 2009 to 2013 of AgriNurture Inc. accessed and utilized through the latest available financial reports submitted by the company in the Securities and Exchange Commission. Information was gathered through interviews and connections to the company. The Vice President of the company’s farming sector, Mr. Larry Pangilinan instituted the researchers to the head of exports, Ms. Liza Guinto who both provided the researchers with the internal information necessary for the research. The proponents also gathered information from: a) print materials from the San Beda College library; b) government websites such as AgriNurture, Inc. | 6

NEDA, PSA and NSO; c) international websites such as FAO, Trading Economics and World Bank, and; d) the company’s website. Chapter III

CAUSES OF THE PROBLEM A.

Industry and Competitor Analysis

a.

The Philippine Agricultural Sector Philippines has a total area of 13 million hectares devoted to agricultural crops making it

an agricultural country. It is divided into 4 parts which is the food crops, food grains and nonfood crops. 31% is occupied by food grains, 52% is utilized by the food crops, on the other hand 17% were used for non-food crops.

b.

Agricultural Economic Sector The country’s agricultural sector comprises of livestock and crop produce. The NEDA

aims for a competitive agriculture and fisheries sector as it plays an important role in the country’s development: “from 2004 to 2010, agriculture and fisheries contributed an average of 18.4 percent to GDP and the sector grew at an average rate of 2.6 percent annually” (“Millennium Development Goals”, 2013). The 2013 agricultural performance report provided by the Bureau of Agricultural Statistics (BAS) shows that the current agricultural industry of the country is valued at 1.3 trillion pesos with a growth rate of 1.15 percent. Looking forward, the NEDA development plant for 2010 to 2016 is to “achieve a stable macro environment of the country by reducing a “deficit-to-GDP ratio from 3.7 to 2.0 percent by 2016” (“Development Matrices”, 2011).

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Source: National Statistics Office

Agriculture 2.89

1.15

2012

2013

Agriculture posted a 1.15 percent

growth in 2013. Subsectors registered on output gains but increase in crop production was minimal. Livestock, poultry and fisheries also contributed to the improved performance of the sector. The gross output in agricultures was valued at P1.5 trillion, which is equal to 3.51 percent increase from the 2012 earnings.

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Crops 4.15

0.09 2012

2013

Production in the crops subsector

inched up by 0.09 percent. Crops contributed 51.05 percent on the total agricultural output.

Source: National Statistics Office

Palay production grew by 2.26 percent while corn declined by 0.40 percent. Tobacco, onion, mango and cassava had the higher outputs that was recorded. While coconut, sugarcane, banana, coffee, abaca, peanut and calamansi had lower output levels was noted from those products. The subsector grossed P814.7 billion at current prices. This was 2.13 percent higher than last year’s record.

Farmgate Prices 2.5

2012

2013

-1.56

On the average, farmgate prices went up by 2.33 percent during the reference period.Crops subsector registered an average price gain of 2.04 percent. On the other hand livestock had higher average price increment of 6.94 percent. Poultry sector increased prices by

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an average of 0.10 percent. While fisheries subsector prices increased by an average of 1.53 percent.

The Philippine Banana Industry The Philippines’ production area of banana ranked as the third largest in the world at 415,000 hectares in 2004 or about 8.5% of the total world area. It ranked second to India which has 680,000 hectares.

The Philippines is the second largest

Source: National Statistics Office

exporter of bananas after Ecuador, with some 2.6m tonnes exported in 2012. That same year the exports from the Philippines made up 98% of the Asian banana trade. Two thirds of the exported volumes were shipped to Japan, China and South Korea.

Banana is the leading fruit grown in the Philippines and a consistent top dollar earner. The Philippine prospect for bananas in the domestic and foreign market is still promising: Cavendish and banana chips for export.

Others; 6% Lakatan; 6%

Saba; 18%

Cavendish; 70%

Figure 3.5. Banana: Percent distribution of production by variety, Philippines, July – September 2014

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The banana industry in the Philippines is surrounded by a number of issues which include agrarian reform, labor rights violations, environmental degradation, sustainable development and food security.The root cause of these issues are the practices and manner by which international companies have managed the banana industry. The price determination of bananas for export has remained under the control of the big institutional buyers, despite the growing liberalization of the industry.

Relevance The main banana export variety of AgriNurture, In. is Cavendish and its main production area is in Mindanao. The Export Group sources its supply from small independent growers and from established corporate plantations to consolidate as much supply as it can to satisfy its clients in China, Korea, Middle East and Russia. The requirement of the ANI Export Group is currently in the range of 25-50 forty-foot containers a week.

The Philippine Mango Industry Based on the Bureau of Agricultural Statistics data, Philippines is the 7 th largest mango producer in the world. It reached 771.4 thousand metric tons in which 95% is domestically consumed.It has an established domestic market and has bright opportunities for the international market both in fresh or processed forms.

Majority of the mango processors are small and medium enterprises (SMEs). Small farmers own about 73% of the total area planted to mangoes while 24% operate farm sizes between 3 to 9.99 hectares. Those 10 hectares and above constitutes only 3%. Based on management contract with the farmers,

sprayers (contractors)

undertake cultivation

management including the well-known Philippine mango. Mangoes are sold to wholesale

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markets, processors, wet retail markets, supermarkets and exporters. Manila, Cebu and Davao are the major cities that serve as the key trading centers for mangoes that are sold in the local market.

Piko; 3% Others; 18%

Carabao; 79%

Figure 3.4. Mango: Percent distribution of production by variety, Philippines, July – September 2014

The world demand for mangoes are increasing particularly in temperate countries. According to a major exporter, the strengths of the Philippine mangoes are the year-round production, superiority in taste of Carabao, a major variety cultivated and geographical adjacency when exporting to East Asia.Fresh mango exports ranked 3 rd among the exported fruits of the country. Japan and Hong Kong are the major export destinations, the transshipment point to China, whose respective shares are 52.9% and 35.7% in value term.

Relevance ANI exports Carabao mangoes. The Export Group sources its mangoes from all over the Philippines via a network of growers and suppliers who have been in the mango business for decades. The Export Group also taps the various mango contract growers of ANI who avail of the inputs loan provided by the Farming Group. These mango growers follow the strict mango production system prescribed by the Government to comply with good agricultural practices as

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well as the pesticide spraying protocol. By adhering to these strict standards, ANI’s mango exports can be accepted by any stringent market abroad. The Export Group manages all the processes involved in exporting mango with the help of Hansung Agro Products Corp. as the processing and packing facility with Vapor Heat Treatment capability.

The Philippine Coconut Industry The coconut industry by any measure is a majorindustry in agriculture. It has been a consistent contributor to the Phillippine economy. It accounts for 5.97% on the average the country’s gross value added (GVA) and 1.14% of the gross national product. Coconut products are included on the top five net foreign exchange earners, averaging at least US$760 million annually. Moreover, the industry has a 59% share in world coconut exports.

On the contrary of the good performance of the sector, the coconut sector of the country is in crisis due to the poor productivity, unstable prices, under-utilization of coconut farms, under-employment and inadequate industrialization. Poverty among the coconut farmers and farm workers has been widespread as stated earlier. There are about 90% of the 3.4 million farmers who live below the poverty line.

Relevence Coconut water is one of the most sensational among ANI products in the market today for both local and export. This product is exported by the ANI Export Group to USA, Canada, Australia, New Zealand and the Middle East. The facility used for processing and packing for coconut water export is owned by M2000 IMEX Co., Inc.

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c.

Industry and Market Segments Performance of Philippine Agriculture Gross output in agriculture was valued at P1.5 trillion at current prices in 2013. In

relation to the gross earnings during the reference period it increased by 3.51 percent growth due to the increases in both production and prices across subsectors.

I.

Value of Production Mango

Banana

Coconut

120.89 102.89

108.13

116.63

88.83

18.60 2011

19.52

2012

81.33

19.35

2013

*in trillion pesos FIGURE 3.6 Value of Production in Agriculture at Constant Prices, Philippines, January - December, 2011 – 2013

In 2013, gross output in agriculture was valued at P1.5 trillion at current prices. The increases in both production and prices across subsectors resulted in the 3.51 percent growth in gross earnings during the reference period. P1.87 billion at current prices and posted a 2.13 percent increment from last year’s level was the gross of the crop subsector.

Gross value of coconut production decreased

by 8.44 percent because of lower

production and prices during the reference period. This year, a 5.77 percent contraction was registered because of lower volume of output. Better prices contributed to the 7.86 percent gain in gross earnings from banana during the year.

II.

Volume of Production

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Mango

Banana

15.86

15.24

8.65

0.82

0.77 2011

15.34

9.23

9.17

0.79

Coconut

2012

2013 *in trillion pesos

FIGURE 3.7. Volume of Production in Agriculture, Philippines, January - December, 2011 – 2013

In 2013, agricultural production increased by 1.15 percent. The crops subsector with a 51.05 percent share in the total agricultural output increased by 0.09 percent over the year ago level.

Coconut production decreased by 3.26 percent during the reference period. This was due to the reduction of the area harvested in the provinces which was affected by the Typhoon “Pablo”, namely, Davao Oriental, Davao del Norte, Compostela Valley, Agusan del Sur and Surigao del Sur. The other typhoons “Labuyo” and “Santi” contributed on the short fall in Aurora and “Yolanda” in Leyte, Eastern Samar, Samar and Aklan. Cutting and replanting of less productive trees were noted in Oriental Mindoro. Shifting to rubber cultivation was reported in Basilan. Lesser harvesting as a result of low prices of copra was noted in Surigao del Norte. In Batangas, trees affected by scale insects were cut.

Banana production decreased by 6.29 percent. Trees toppled down by Typhoon “Pablo” in Davao Region, Caraga and Central Visayas had not yet fully recovered. “Labuyo” and “Santi” which hit CAR, Cagayan Valley and Central Luzon and Typhoon “Yolanda” affected the Visayas regions and the reported closure of Soriano Farm in Agusan del Norte also contributed to the negative performance of banana.

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Major Global Contributors to the Industry Output (in million tonnes) 29.7

5.1

4.8

3.9

er oo n

6.1

am

7.3

C

8.0

In do ne si a

9.2

Ec ua do r

hi na

10.7

C

In di a

11.1

Source: Food and Agriculture Organization of the United Nations FIGURE 3.8. Top Banana Producers in the World, 2013

Output (in million tonnes) 15.19

4.35 1.25

0.89

0.85

0.80

N ig er ia

1.82

il

ta n

1.89

B ra z

2.13

Pa ki s

Th ai la

nd

2.60

In di a

d.

Source: Food and Agriculture Organization of the United Nations FIGURE 3.9. Top Mango Producers in the World, 2013

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Output (in million tonnes) 18.30 15.35 11.93

G

1.01

0.61

Pa pu a

N ew

1.10

nd

1.20

ui ne a

1.31

Th ai la

2.20

Sr iL an ka

In di a

In do ne si a

2.82

Source: Food and Agriculture Organization of the United Nations FIGURE 3.10. Top Coconut Producers in the World, 2013

e.

Analysis of Macro-Environment Components

General Economic Conditions and Global Factors According to the National Statistical Coordination Board (NSCB), the latest gross national income growth rate of the country is at 7.8 percent based on the fourth quarter of 2013, however decreased by 0.3 percent from the third quarter of 2013 (StatWatch,2014).

In addition, the National Economic Development Authority (NEDA), reported that over the years, the country’s growth rate in the second half of 2010 was at 6.7 percent but had a slow increase over the years with a 7.6 percent growth rate recorded in 2012 (“Socioeconomic report”, 2012). During 2010, NEDA reports that the some of the indicators that led to a steady growth rate over the years 2010 to 2012 were fuelled by “upgrades in infrastructure and capital stock and expanding social safety nets” as well as “strong domestic demand, sustained growth in overseas Filipino remittances, and low inflation” (2012). As shown above, the growth rate indicates a slow but increasing rate.

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Gross National Income (Growth Rate)1 Gross Domestic Product (Growth Rate)1 Exports2

Latest 7.8

Year Ago 6.4

Previous 8.1

4th Qtr 2013

4th Qtr 2012

3rd Qtr 2013

6.5

7.1

6.9

4th Qtr, 2013

4th Qtr, 2012

3rd Qtr, 2013

USD 4,599 million USD 3,971 million USD 5,233 million USD 5,208 million

USD 4,294 million Nov 2013 USD 4,824 million

Nov 2013

Nov 2012

Oct 2013

4.2

4.2

4.1

Jan 2014

Jan 2013

Dec 2013

3.2

3.2

3.2

(Jan 2014)

Jan 2013

Dec 2013

17.9%

19.0 %

19.2%

Oct 2013

Oct 2012

Jul 2013

6.5%

6.8 %

7.3%

Oct 2013

Oct 2012

Jul 2013

Dec 2013

Imports2 Headline inflation rate Core Inflation Rate Underemployment rate3 Unemployment Rate3

Dec 2012

1 Taken from National Statistical Coordination Board; 2 Taken from the National Statistics Office; 3 Taken from Bangko Sentral ng Pilipinas Table 3.1. Economic indicators in the Philippines, 2012 – 2013

The Natural Environment The Philippines is considered to be a tropical rainforest with different natural resources such as forests, fertile lands and seas (NSCB, 2011). Below are the statistics regarding the environment situation of the Philippines from the United Nations Statistics Division: Total area (sq km) Agricultural land (sq km) Arable land (% of agricultural land) Permanent crops (% of agricultural land) Permanent meadows and pastures (% of agricultural land) Change in agricultural land since 1990 (%) Forest area (sq meter) Change in forest area since 1990 (%)

300,000 121,000 454 43 12 9 77,198 18

TABLE 3.2. Statistics on Philippine Environment, 2011

One of the projects developed by the Department of Environment and Natural Resources (DENR) is to manage and distribute lands: “management and disposition of alienable and disposable lands of the public domain and other lands outside the responsibilities of other government agencies, such as reclaimed areas and other areas not needed for or are

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not being utilized for the purpose for which they are established. The latest issued progress on is that currently, “a total of 176,091 patents were issued covering 94,021 hectares. These consist of: (a) agricultural areas (CARP-funded) – 115,631 patents (92,146 ha); (b) residential areas – 58,486 patents (1,430 ha); and (c) commercial and industrial areas – 1,974 patents (445 ha)” (DENR, 2011). The environment of the country is affected by several changes in its climate, and due to global warming, especially with the recent hit typhoon Yolanda, a category 5 typhoon has been alarming. According to the PAGASA report, “there is reduction in rainfall in most parts of the country during the summer (MAM) season. However, rainfall increase is likely during the southwest monsoon (JJA) season until the transition (SON) season in most areas of Luzon and Visayas, and also, during the northeast monsoon (DJF) season, particularly, in provinces/areas characterized as Type II climate in 2020 and 2050. There is however, generally decreasing trend in rainfall in Mindanao, especially by 2050” (PAGASA, 2011).

Population Demographics Population Growth Rate 1.99 1.96 1.93 1.9 1.87 1.81

2008

2009

2010

2011

2012

2013

Source: National Statistics Coordination Board FIGURE 3.11. Philippine Population Growth Rate (%)

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The Philippine population is currently at 92.34 million (as of May 2010) from 88.55 million from August 2007 (NSO, 2013). Based on the statistics released by the National Statistics Office, the population is expected to rise: “the Philippine population would continue to grow, increasing 76.5 million, as of the latest population census conducted in May 2000, to 141.7 million in 2040, according to the Medium Series of the 2000 Census-based population projections. This means that 65 million people would be added to the nation's population between 2000 and 2040, which is a span of 40 years, even if the average annual growth rate is projected to drastically decline from 2.34 percent during the 1990-2000 period to around 1.0 percent during the 2030-2040 period. The population is projected to grow by 1.95 percent in the 2005-2010 period, from 85.3 million in 2005 to 94.0 million in 2010” (NSO, 2006). f.

Supply Chain

FIGURE 3.12. The Agricultural Food System Supply Chain

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The agri-food system includes farmers and a diverse range of firms, including backwardlinked input suppliers and forward-linked intermediaries, processors, traders, wholesalers and retailers. The main activities for direct supply chain entities are as follows:  Input supply. This includes the production and distribution of material inputs — such as fertilizer, seeds, packaging, etc. — utilized in the primary production, processing and/or trade of the focal commodity.  Farm production. This stage is concerned with primary agriculture production and ends with the sale of a raw commodity at the farm gate. These transactions may occur literally at the farm gate or at some other point where the farmer hands over ownership of the product to the next supply chain participant. Depending on the crop, some type of primary processing (such as the shelling or bagging of dry grain) may take place at the farm level.  Processing. The processing stage involves the transformation of agriculture raw materials into one or more finished goods — through drying, canning, freezing, or Enabling Environment – Domestic and International many other methods. Raw commodities, of course, are also traded and distributed and thus this stage may not apply to every crop.  Domestic and international logistics. The logistics stage is concerned with the delivery of marketed commodities to their final market destination.

Conditioning the entire supply chain are the domestic and international enabling environments. From a domestic perspective this includes: fiscal and financial sector policies, pricing and investment incentives and institutions, the regulatory and legal framework etc. From an international perspective, the enabling environment includes international trade regulations and agreements, other international protocols, and the policies/regulations of nations and trading blocs with whom the focal supply chain sources and sells inputs or products.

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Supply chains are more complex, with many participants, with product, finance and information flows often traversing large geographical/international areas and with distinct intraand interseasonal dimensions. Supply chains may also be divided into an array of sub-supply chains, traversing the farm-to-fork continuum (i.e. production to consumption) for specific commodities (or closely associated commodities). It is therefore important to focus on key supply chain participants, flows, and transaction points, and to identify appropriate levels of analysis.

C.

Market Segments and Trends

Gross Domestic Product (%) Inflation (%) 6.8 4.6 3.7

7.2 6.2

6.4

4.4 4.1

3.2 3.0

2011

2012

2013

2014E

2015E Source: Asian Development Bank

FIGURE 3.13. Economic Forecasts (% per year), Philippines, 2011 – 2015E

Robust growth in the first half of 2014 was fueled by private consumption and investment coupled with a recovery in exports. Growth is seen quickening in 2015, though earlier forecasts for both this year and next are trimmed to take into account a slowdown in government

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spending and the steady tightening of monetary policy. Inflation will be slightly above the earlier projections (ADB, 2014). Slightly stronger growth is projected through the rest of this year and in 2015 on expectations that post-typhoon reconstruction accelerates, government fiscal disbursement improves,

and

exports

benefit

from

brighter

prospects

in

the

major

industrial

economies.However, unexpectedly low government spending coupled with higher inflation and associated monetary tightening prompt revised forecasts trimmed to 6.2% for this year and 6.4% for 2015 (ADB, 2014).

D.

Pricing Mango

Banana

Coconut

25.41

23.6

23.71

13.49

11.72

11.19 7.93

5.6

2011

2012

5.3

2013

*in Philippine Peso FIGURE 3.14. Weighted Average Farmgate Prices in Agriculture, Philippines, January - December, 2011 – 2013

Farmgate prices increased by an average of 2.33 percent in 2013. In the crops subsector, prices made a changed its course from last year’s decline to an average gain of 2.04 percent this year.

AgriNurture, Inc. | 23

Abig price gain was noted for banana at 15.10 percent. This was traced to the high demand from buyers for bananas as fresh fruit for immediate consumption and for processing. It is because of the high demand buyers for bananas as fresh fruit for immediate consumption and for processing. Coconut price was down by 5.36 percent due to the low buying price for copra. These were attributed to the decreasing world market prices of these commodities. Price of mango went down by 6.69 percent because of increase in production.

E.

Distribution Channel

AgriNurture, Inc. and Its Subsidiaries

O c e a n B i o c h e m is t r y R e s e a r c h T e c h n o l o g F y r u it i l i c i o u s C o m o n a y , In cF i. r s t C l a s s A g r i c u l t u r e C o r p o r a t i o n H e p p y C o r p . F r e s h a n d G r e e n P a l a w a n A g r i v e n t u r e s , InM c 2 . 0 0 0 IM E X C o ., In c . L u c k y F r u i t a n d V e g e t a b l e s P r o d u c t , In c . T h e B i g C h i l , In c . F a r m v i l e F a r m i n g C o ., In c . C o c o T r o p i c , In c . F r e s h a n d G r e e n H a r v e s t A g r i c u lt u r a l C o r p o r a t i o n B e i d a h u a n g ( P h i l s .) A g r o In d u s t r i a D e v e l o p m e n t H a n S u n g A g ro P ro d u c ts , C o rp . B e s t C h o ic e H a r v e s t A g r ic u lt u r a l C o r p o r a t io n G o o d s a n d N u t r i t i o n f o r A l , In c . W a n t a ix in g G r o u p C o r p o r a t io n Q u a li s L o g i s t i c s a n d T r a n s p o r t S e r v i c e s , In c . S u n s h i n e S u p p l i e s C o ., L t d . FIGURE 3.15. Distribution Channel of AgriNurture, Inc. and Its Subsidiaries

F.

Porter’s Five Forces of Competitive Analysis The economic structure of an industry is not an accident. Its complexities are the result

of long-term social trends and economic forces. But its effects on the management are immediate because it determines the competitive rules and strategies that likely to be used.

The diagram below shows the five forces formulated by Michael Porter that are widely used to assess the structure of an industry:

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FIGURE 3.16. The Five Forces Model of Competition

The overall five forces show that the competition in the agricultural industry is strong. Below is the summary of how strong, moderate or weak the five competitive forces are in the industry:

FIGURE 3.17. Competitive Forces Affecting the Agricultural Industry in the Philippines

AgriNurture, Inc. | 25

a.

Factors affecting Strength of Rivalry The diagram below describes the factors that strengthen or weaken this competitive

force. Overall, the rivalry among competing sellers is strong. Competing sellers are active in making fresh moves to improve their market standing and business performance. Agricultural production and distribution is characterized by a high degree of competitive rivalry. Efforts to develop branded or specialized products are quickly and effectively copied, and meaningful differentiation is difficult to achieve. The competitive rivalry plays out most clearly in bidding for productive resources. Here, producers typically bid most of their long-term potential profitability into the price of fixed assets such as farmland. As a result, rivalry has a very detrimental impact on individual profitability in the sector. However, it also encourages firms to be extremely efficient and productive as cost competition is the most likely source of competitive advantage.  Buyer demand is growing slowly The buyer demand is growing slowly because the demand grows in line with population growth. There is a growing buyer demand because buyers rely on these producers in order to survive. Buyers are unable or unwilling to cut out of their budgets regardless of their financial situation. Also, buyers tend to demand these products at a relatively constant level, regardless of their price.  Buyer costs to switch brands are low. Buyer costs to switch brands are low because the competitors’ products are similar in terms of features and usage of the product. All the more, because of similarities of features and usage, it is important to develop brand loyalty through brand differentiation.

AgriNurture, Inc. | 26

b.

Factors affecting Threat of Entry The diagram of the competitors as shown below describes the strengths and weakness

affecting the threat of potential entrants. Overall, the threat of new entrants is weak.  The pool of entry candidates is small. There is difficulty in entering into the current industry primarily because the amount of capital needed for new entrants is quite sizeable and the gross profit margins are very limited (leading to small returns). Current players that possess a competitive advantage in the market are big domestic companies, although there are other multinational competitors such as Dole, who are able to compete because of their large resources.  Entry barriers are high. Entry barriers are high because of high capital requirements such as the acquisition of lands and the strong brand image of existing players. Current players in the industry have somehow gained customer loyalty and brand preference. As per an internal basis with AgriNuture, Inc., with over a decade of experience in handling fresh fruits and vegetables and gaining many years worth of learning in product innovation, the company has attained product acceptance in major world markets such as Hong Kong and China. It has catapulted ANI into being one of the top exporters of mangoes from the Philippines. The Company is even now among the few, accredited by the China government to export mangoes to their country.  Buyer demand is growing slowly or is stagnant. Demand for agricultural products is growing slowly primarily because these serve as inputs to crop production, which tends to grow in line with population growth.

AgriNurture, Inc. | 27

 Industry members will strongly contest the efforts of new entrants to gain a market foothold. The ability of the existing players to contest new entrants is strong because of their significant size and developed brand equity with customers.

c.

Factors affecting Competition from Substitutes The diagram below shows the following factors affecting how strong or weak of threat of

substitutes in the industry. The competitive force of substitutes is weak. There are three factors that make the competitive force of substitutes weak.  Good substitutes are not readily available or don’t exist. There are currently no cost-effective substitutes for the crops offered in the agricultural sector because they offer crops that have been grown under strict systems that maximizes the quality of crops produced.  Substitutes are higher priced relative to the performance they deliver. The current substitutes for agricultural products are food supplements and other vitamins which clearly are priced higher than the current commodities provided by the agricultural sector. The effect of these substitutes is also not yet proven to be more effective than the natural and organic products offered by the industry.  End users have high cost in switching to substitutes. End users have high cost in switching to substitutes because these substitutes may not offer the same quality of products. Although some end users can produce it themselves, the production cost will be quite costly considering the high capital required and nonpossession of the benefit of scale and access to competitive raw material sourcing.

AgriNurture, Inc. | 28

d.

Factors affecting Bargaining Power of Suppliers The diagram below describes the factors that strengthen or weaken this competitive

force. Overall, the bargaining power of suppliers is strong. The following are the factors that make the bargaining power of suppliers strong.  Industry members incur high costs in switching their purchases to alternative suppliers. Industry members typically incorporate alternative fertilizers when the price of the main raw material is high but there are limits because the nutrient factors of the substitutes are different. However, industry players will source from established reputable traders (either local or international traders) to ensure both quality and delivery of their raw materials.  Needed inputs are short in supply (which gives suppliers more leverage in setting prices). For instance, the current instability in the supply of fertilizer products and the concomitant surge of its prices with the industry members purchasing the products in bulk through a consortium (i.e, so they can contract an entire vessel). Suppliers have high bargaining power during supply imbalances because they can dictate the price of the raw material.  There are a few suppliers of a particular input. Ferilizers and pesticides are limited because there are licences required before their production and distribution of these products according to the Fertilizer and Pesticide Authority (FPA), making the bargaining power of suppliers much stronger.

e.

Factors affecting Bargaining Power of Buyers

AgriNurture, Inc. | 29

Overall, the bargaining power of buyers is strong. The current buyers of the company’s products are retailers and distributors wherein the products are sold to the end consumers. The following are the factors that make the bargaining power of buyers strong:  Buyer switching costs to competing brands or substitute products are low. Buyer switching costs to competing brands or substitutes are low because competing brands offer products that provide the same features or enhancements. Industry players can easily switch from one brand to another without having to worry about how much cost they would incur.  Large volume of purchases by buyers is important to sellers. Agricultural farms harvest large quantities of their products at specific times of the year. Thus, large volume of purchases are important so that the inventories they maintain would be consumed before peak seasons or before demand decreases.

 Buyers are large and can demand concessions when purchasing large quantities. Agricultural farms buy the pesticides and fertilizers in large quantities because of the large inventory they maintain. All the more, these buyers can exert a great degree of influence on the pricing and delivery of goods from AgriNurture and it’s competitors.  Some buyers are a threat to integrate backward into the business of sellers. Buyers can be a potential threat because of the resources that the country offers. When the prices of crops become expensive, buyers can resort to producing the raw materials needed or making the crops themselves. G.

External Assessment

AgriNurture, Inc. | 30

The following are the Opportunities and Threats of AgriNurture, Inc. and its significant weights. The ratings on the external factors are identified to have either a poor response (Rating: 1); average response (Rating: 2); an above average response (Rating: 3); or a superior response (Rating: 4). OPPORTUNITIES O1. Increased awareness to further develop strategies in the banana industry. Rating 2: AgriNurture, Inc., despite its strong position in its current sector continues to partake in several symposiums that would help them give focus on various strategies to further boost the banana industry. As the banana industry being one of the major economic driver in the country and ANI, symposiums and seminars will help the industry leaders and company to improve its strategies in scientifically developing crops and its growing market demand and to save it from diseases as well. O2. AgriNurture Inc. adds pineapple as the new fruit product for export. Rating 4:

AgriNurture Inc. is looking at expanding its export product line with pineapple

as it eyes additional offerings to markets in Russia, China and the Middle East.Considering the country as a top exporter of pineapples with one of the best qualities around the world, the company proves its excellent capacity on the selection of new products it will offer and introduce in the market. O3. Increased global opportunities due to the ASEAN Integration in 2015 Rating 4:

Most ASEAN countries are engaged in agriculture, producing and exporting

similar varieties of fruits and vegetables. The challenge for ANI is to be a better-known brand and company in the global markets than its ASEAN counterparts, ensuring that only quality products from the Philippines reach the market. O4.

Productivity is expected to grow according to the National Economic and

Development Authority.

AgriNurture, Inc. | 31

Rating 2:

According to the Philippine Development Plan 2011 prepared by the National

Economic and Development Authority, productivity is expected to rise in the following years. As a result, AgriNurture may have an increase in percentage of sales and a reduce cost of sales due to the reported decrease of harvest loses of bananas and mangoes in the country. O5.

Expected 6.4% increase in the 2015 GDP growth rate. Rating 1:A slightly stronger economic growth is projected through the rest of this year and

in 2015 on the expectation that post-typhoon reconstruction accelerate, government fiscal disbursement improves, and exports benefit from brighter prospects in the major industrial economies.The progressing economy of the country may result to a higher GDP for the coming months. As a result, this may improve the company’s stability and revenue and may open different opportunity like expansion in the ASEAN countries. THREATS T1.

Cocolisap infestation damaging the coconut production. Rating 2:

On the other hand, ANI, with its vast experience, valuable linkages, and wide

geographical presence is able to manage this type of risk by adopting modern pest control systems and Good Agricultural Practices such as crop rotation and the use of a mixture of organic fertilizers. In practice, ANI sources its supply requirements from farms and buying stations located in different provinces and regions of the country. This way, no widespread infestation would drastically weaken ANI’s supply chain at any time. Also, ANI’s strategic nationwide locations allow its farm production and trading activities to easily shift bulk of its key operations from one region to another should the need arise. T2.

Decreasing area of production affecting satisfaction of demands for exports

AgriNurture, Inc. | 32

Rating 3:

ANI produces its vegetables and fruits (especially mangoes) from various

sources, ranging from small farmers to big producers. Currently, a minimal part of ANI’s internal supply requirement is provided for by its farming subsidiary, Best Choice Harvest. As a policy, volume and quality is the main consideration in the sourcing of all the products handled by ANI. However, the risk of supply shortage poses significant threat to the continuity of business operations and ultimately to the image of the Company. T3.

Increased government intervention due to allegations of AgriNurture, Inc.’s CEO with Vice President Binay Rating 1:

ANI, an agricultural company was one of the biggest stock decliner (2014)

after the company’s top executive, Antonio Tiu was linked to the allegation with Vice President Binay. As a result to the company’s loss, ANI may have a negative impact on its investors and customers . T4.

Increasing intensity of competition due to ASEAN Market Integration in 2015 Rating 2:

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. An intense competition will therefore raise the bar for innovation, quality and productivity, which will enable businesses to compete head on with other players. a.

External Factor Evaluation Matrix

Opportunities & Threats O1. Increased awareness to further develop strategies in the banana industry.

Weight

Rating

Weighted Score

14%

2

0.28

O2. AgriNurture Inc. adds pineapple as their new fruit product for export.

15%

4

0.60

O3. Increased global opportunities due to the ASEAN Integration in 2015

11%

4

0.44

AgriNurture, Inc. | 33

O4. Productivity is expected to grow according to the National Economic and Development Authority

10%

2

0.20

O5. Expected 6.4% increase in the 2015 GDP growth rate.

8%

1

0.08

T1. Cocolisap infestation damaging the coconut production.

10%

2

0.20

T2. Decreasing area of production affecting the satisfaction of demand for exports

11%

3

0.33

T3. Increased government intervention due to allegations of AgriNurture, Inc.’s CEO with Vice President Binay

9%

1

0.09

T4. Increasing intensity of competition due to ASEAN Market Integration in 2015.

12%

2

0.24

TOTAL

100%

2.46

TABLE 3.3. The External Factor Evaluation Matrix

b.

Strategic Issues Based on External Factors The highest point in opportunities given by the researchers is about Agriurture’s new

export product line with pineapple. It can help raise the revenue of ANI, as it eyes additional offerings to markets in Russia, China and the Middle East. Considering the country as a top exporter of pineapples with one of the best qualities around the world, the company can sustain its position in the export market. The highest possible threat is the increasing intensity of competition due to the ASEAN Market Integration. The local market will be greatly affected due to the entrants of foreign market and the less government intervention in the country. Breakdown of Cost of Sales Breakdown Operating Expenses

Profitability Ratios

AgriNurture, Inc. | 34

2013

2012

2011

2010

2009

Gross Profit Sales Total

578,355,822 2,926,429,244 19.76%

385,222,207 2,329,946,985 16.53%

519,031,385 2,253,760,239 23.03%

270,707,544 1,585,011,759 17.08%

151,715,938 1,017,682,209 14.91%

Operating Profit Sales Total

100,401,423 2,926,429,244 3.43%

28,851,405 2,329,946,985 1.24%

320,613,502 2,253,760,239 14.23%

151,380,584 1,585,011,759 9.55%

56,881,536 1,017,682,209 5.59%

22,446,181 2,926,429,244 0.77%

-145,010,551 2,329,946,985 -6.22%

216,101,374 2,253,760,239 9.59%

638,722,288 1,585,011,759 40.30%

35,689,968 1,017,682,209 3.51%

22,446,181 4,788,820,066 0.47%

-145,010,551 4,893,061,512 -2.96%

216,101,374 3,761,036,914 5.75%

638,722,288 2,424,243,615 26.35%

35,689,968 769,904,504 4.64%

22,446,181 2,284,815,700 0.98%

-145,010,551 3,488,441,765 -4.16%

216,101,374 2,315,690,680 9.33%

638,722,288 1,585,192,634 40.29%

35,689,968 546,301,771 6.53%

22,446,181 361,903,281 2,284,815,700 0.85%

-145,010,551 417,902,857 3,488,441,765 -3.71%

216,101,374 535,949,483 2,315,690,680 7.58%

638,722,288 252,388,988 3,488,441,765 17.07%

35,689,968 733,215 546,301,771 6.52%

A. Gross Profit Margin

Gross P rofit Sales

B. Operating Profit

Operating Profit Sales

C. Net Profit Margin

Net Income Sales Net Income Sales Total D. Net Return on Sales

Net Income Total Assets Net Income Total Assets Total E. Return on Stockholders Equity

Net Income Total Shareholders Equity Net Income Total Shareholders Equity Total F. Return on Invested Capital

Net Income Long Term Debt + Equity Net Income Long Term Debt Equity Total

TABLE 3.3.Profitability Ratios for Years 2009 to 2013 (in PHP)

Based on Table 3.3, the company is overall profitable, generating sufficient income from the fiscal years 2009 to 2013. Its sales increased from Php1,017,682,209 in 2009 to AgriNurture, Inc. | 35

Php2,926,429,244 in 2013. However, the increase in sales in itself does not tell the overall performance in the company since based on its ratios, there is a remote decline in terms of its profitability, especially in the year 2012. From the gross profit margin ratio, the decline from 23.03% in 2011 to 16.53% in 2012 shows a decrease of 6.5% and such decline can be attributed to the increase of cost of sales of the company during the year (see Appendix).

Liquidity Ratios 2013

2012

2011

2010

2009

A. Current Ratio

Current Assets Current Liabilities Current Assets Current Liabilites Total

2,708,069,905 2,142,101,085 126.42%

2,514,667,150 986,716,890 254.85%

1,744,170,488 909,396,751 191.79%

1,091,260,798 586,661,993 186.01%

604,168,994 222,869,518 271.09%

B. Net Working Capital Current Assets 2,708,069,905 2,514,667,150 1,744,170,488 1,091,260,798 604,168,994 Current Liabilities 2,142,101,085 986,716,890 909,396,751 586,661,993 222,869,518 Total 565,968,820 1,527,950,260 834,773,737 504,598,805 381,299,476 In addition, the operating profit margin ratio of 2012 declined to 1.24% because of the increase in expenses and other costs attributed, that the sales generated for the year is not enough to increase the level of operating profit margin for 2012. Furthermore, in terms of its return on stockholders’ equity, there is a heavy decrease by 12.99% from 2011 to 2012. The decline in 2012’s profitability ratios is substantially high which can however, be improved with serious conservation in the latter years considering the slight recovery that it has made by 2.19% in 2013. TABLE 3.4 Liquidity Ratios for Years 2009 to 2013 (in PHP)

2013

Leverage Ratios 2012

2011

2010

2009

A. Debt to Asset Ratio

AgriNurture, Inc. | 36

Total Liabilities Total Assets Total Liabilities Total Assets Total

2,504,004,366 4,788,820,066 52.29%

1,404,619,747 4,893,061,512 28.71%

1,445,346,234 3,761,036,914 38.43%

839,050,981 2,424,243,615 34.61%

223,602,733 769,904,504 29.04%

361,903,281 2,284,815,700 13.67%

417,902,857 3,488,441,765 10.70%

535,949,483 2,315,690,680 18.79%

252,388,988 1,585,192,634 13.73%

733,215 546,301,771 0.13%

2,504,004,366 2,284,815,700 109.59%

1,404,619,747 3,488,441,765 40.26%

1,445,346,234 2,315,690,680 62.42%

839,050,981 2,424,243,615 34.61%

223,602,733 546,301,771 40.93%

B. Long Term Debt to Capital Ratio

LongTerm Debt Long Term Debt + Equity Long Term Debt Total Shareholders Equity Total C. Debt to Equity Ratio

Total Debt Total Equity Total Debt Total Shareholders Equity Total D. Long Term Debt to Equity Ratio

Long Term Debt Total Equity Long Term Debt 361,903,281 417,902,857 535,949,483 252,388,988 733,215 Total Shareholders Equity 2,284,815,700 3,488,441,765 2,315,690,680 2,424,243,615 546,301,771 Total 15.84% 11.98% 23.14% 10.41% 0.13% Table 3.4 shows the two important liquidity ratios: the current ratio and the working capital ratio. Overall, the company is liquid and the company has sufficient funds to pay short term debts and other current liabilities. In this situation, there was a significant drop from 254.85% in 2012 to 126.42% in 2013. This is primarily caused by the increase in current liabilities from 2012 to 2013, Php 986,716,890 and Php 2,142,101,085 respectively. This could be considered a threat to the company’s liquidity since the decrease was too much and could pose as a warning that eventually, current liabilities would outweigh current assets. TABLE 3.5. Leverage Ratios for Years 2009 to 2013 (in PHP)

2013

Activity Ratios 2012

2011

2010

2009

A. Days of Inventory

AgriNurture, Inc. | 37

(

Inventory Cost of Goods Sold 365

)

Inventory Cost of Goods Sold Total (in days) B. Inventory Turnover

28,456,368 2,348,073,422 4.42

134,863,797 1,944,724,778 25.31

155,442,289 1,734,728,854 32.71

77,536,576 1,314,304,215 21.53

37,749,478 865,966,271 15.91

2,348,073,422 28,456,368 82.51

1,944,724,778 134,863,797 14.42

1,734,728,854 155,442,289 11.16

1,314,304,215 77,536,576 16.95

865,966,271 37,749,478 22.94

Cost of Goods Sold Inventory Cost of Goods Sold Inventory Total (times) C. Average Collection Period

Receivables Total Sales 365

(

)

Receivables 715,241,065 900,652,472 715,816,762 352,329,640 296,969,099 Total Sales 2,926,429,244 2,329,946,985 2,253,760,239 1,585,011,759 1,017,682,209 Total (in days) 89.21 141.09 115.93 81.14 106.51 Table 3.5 shows the different leverage ratios of the company. The significant increase in the company’s debt-to-equity and debt-to-asset ratio shows that the company is taking risks. In addition, it could be considered as a risk for investors since the company had a substantial drop in 2012 with only a slight recovery in 2013 based on its profitability performance (in terms of net income from years 2009 to 2013 and generating sales for the past five years). In addition, the increase of debt and other financing needs of the company can be attributed to adding new investments and expansion that the company is undertaking. TABLE 3.6. Activity Ratios for Years 2009 to 2013 (in PHP)

Table 3.6 shows the different activity ratios for years 2009 to 2013. The company’s inventory turnover is relatively low particularly in years 2009 to 2013, which is a good indicator because inventory is moving fast to be sold during the year’s business operations. In addition, the company’s receivable turnover is significantly high, making the company’s collection period much longer, generating lower cash collection during the year. J.

Internal Assessment

AgriNurture, Inc. | 38

The following are the Strengths and Weaknesses of ANI and its significant weights. The ratings on the factors are identified as a major weakness (Rating: 1); minor weakness (Rating: 2); a minor strength (Rating: 3); or a major strength (Rating: 4). STRENGTHS S1.

The sole company in the Philippines consumer staples industry adopting “farm-toplate” business model. Rating 3:

ANI is the sole company in the Philippine consumer staples industry adopting

a “farm-to-plate” business model. They have the Farming Group, the Export Group, the Distribution Group, the Foreign Trading Group and the Retail Group that completes its strategy of integrating its portfolio of services in line with its vision of becoming a global leader in providing nutrition from farm to plate. This factor adds to the competitive advantage of ANI in terms of maximizing its products through its subsidiaries. S2.

Complete and strategic integration of operations. Rating 3:

ANI relies on its now fully integrated operations as a strategic advantage over

its competitors in the industry whether local or foreign. Utilizing a zero-waste approach in its operations. The foregoing operation of ANI significantly accelerates its drive to control supply chain and thereby ensure supply and product quality, and also reduce the risks in developing their own farms. This factor adds to the competitive advantage of ANI in terms of maximizing its production through its subsidiaries.

S3.

Greenergy Holdings, Inc.’s acquisition of 26% of AgriNurture, Inc.’s stock. Rating 4:

Greenergy’s idea in buying ANI was to diversify the portfolio of ANI to other

‘green’ or agricultural projects. ANI has diversified into various agro-commercial businesses,

AgriNurture, Inc. | 39

specifically focusing on the export trading of fresh Philippine carabao mango, cavendish banana and pineapple. With Greenergy in the picture, ANI can expand and enhance its operation through operating with more technological resources. S4.

International and Domestic Accreditations. Rating 3:

Having various accreditation locally and internationally, ANI establish a

reputation in which their products will be trusted when it comes to producing good export quality products that can make consumers and distributors.

S5.

Strong strategic partnerships in the industry Rating 3:

AgriNurture Inc.’s core business has a significant and direct impact on the

livelihood of Filipino farmers and households, in addition to contributing directly to agricultural development and food security. In the process, the Company has forged numerous strategic alliances with government agencies, business organizations, universities, NGOs, and local and international media that were built over years of integrity and trust. S6.

AgriNurture Inc. expands banana farm in Indonesia Rating 4: ANI has already acquired 3,000 hectares of which is allotted for the production

of 40 metric tons per hectare of Cavendish banana. The company has been focusing on expanding its plantation as the company expects high growth to continue in markets outside the Philippines. With AgriNurture’s expansion, the company may boost its productivity and increase its income through increase in export sales. These networks and alliances may provide ANI the capability to mobilize resources promptly and at a bigger scale when market opportunities arise.

AgriNurture, Inc. | 40

WEAKNESSES W1. Diversified business model leads to the mismanagement of some subsidiaries. Rating 2:

AgriNurture may face uncertainties with their operations due to operational

risk involving inadequate or failure internal processes and systems of the parent company as well as its subsidiaries. W2. Incapability of dividend declaration Rating 2:

Declaring dividends show that a company is stable. Investors look at a

consistent dividend payout as a sign of the company's stability. When a company has been able to pay the same dividend over a long period of time, it gives investors more confidence when investing in that company. As a result, ANI’s incapability of declaring dividends may result to various negative effects to the investors and stakeholders.

W3. Continual leasehold of farmlands for agricultural production Rating 1:

With ANI’s lease holding various land in producing agricultural products, may

create an impact to its investors. It may also create unnecessary expenses that ANI can save if they start purchasing their own land. W4. Excessive costs of production Rating 1: ANI has been unnecessarily spending expenses in which they can save by reducing it and invest in other commodities like buying new and high technological products which can boost productivity and lessen salary expenses.

a.

Internal Factor Evaluation Matrix

AgriNurture, Inc. | 41

Strengths & Weaknesses

Weight

Rating

Weighted Score

S1.Distinctive “farm-to-plate” business model in the local market.

11%

3

0.30

S2. Complete and strategic integration of operations.

8%

3

0.24

S3. Greenergy Holdings, Inc.’s acquisition of 26% of AgriNurture, Inc.’s stock.

6%

4

0.24

S4.International and Domestic Accreditations.

7%

3

0.21

S5. Strong strategic partnerships in the industry

9%

3

0.27

S6. Expansion of banana farm in Indonesia

10%

4

0.40

W1. Diversified business model leads to the mismanagement of some subsidiaries

4%

2

0.08

W2. Incapability of dividend declaration

4%

2

0.08

W3. Continual leasehold of lands for agricultural production

10%

1

0.10

W5. Excessive cost of sales and services.

18%

2

0.36

W6. Excessive operating expenses.

13%

2

0.26

TOTAL

100%

2.54

TABLE 3.4. The Internal Factor Evaluation Matrix

b.

Strategic Issues Based on Internal Factors

The internal factors stated above are based from its Annual Reports and some articles over the internet and the newspaper. It is evident that ANI uses its resources effectively and efficiently when it comes to its “farm-to-plate” business model. As the Philippine agricultural sector opens it into a more accessible market through ASEAN integration and increasing exports, ANI has been aggressively improving its product by penetrating different products in their export market. Chapter IV

DECISIONS CRITERIA AND ALTERNATIVE SOLUTIONS AgriNurture, Inc. | 42

A.

The SWOT Matrix The researchers used the SWOT Analysis in analyzing AgriNurture’s strengths and

weaknesses, opportunities and threats that they are currently facing, in order to formulate strategies that would focus their strengths to minimize the threats they carry, and take the greatest possible advantage of opportunities available towards them. STRENGTHS – S

WEAKNESSES – W

S1. Distinctive “farm-to-plate” business model in the local market.

W1. Diversified business model leads to the mismanagement of some subsidiaries.

S2. Complete and strategic integration of operations.

W2. Incapability declaration.

S3. Greenergy Holdings, Inc.’s acquisition of 26% of AgriNurture, Inc.’s stocks.

W3. Continual leasehold of lands for agricultural production.

S4. Foreign accreditations.

W4. Excessive cost of sales and services.

and

domestic

S5. Strong strategic partnerships in the industry.

W5. Excessive expenses.

of

dividend

operating

S6. Expansion of banana farm in Indonesia. OPPORTUNITIES – O

SO STRATEGIES

WO STRATEGIES

O1. Increased awareness to further develop strategies in the banana industry.

SO1. Further expansion of distribution channels to include public markets. (S1, S3, S4, S5, S6, O1, O2)

WO1. Intensive utilization of wholly owned farmlands to mitigate the supply risks inherent in purchasing from third parties. (W3, W4, O3, O4)

O2. AgriNurture Inc. adds pineapple as the new fruit product for export.

SO2. Increase advertising expenditures to rapidly increase consumer awareness towards the brand. (S3, S6, O1, O3, O4)

WO2. Acquisition of existing fruit and vegetable plantations. (W3, W4, O1, O4)

AgriNurture, Inc. | 43

SO3. Maximize the existing competitive strengths such as its nationwide supply and distribution network by further development of current products (S2, S3, S4, S5, O1, O4)

WO3. Establish strong business partners that have significant skills and/or resources that could help the company’s efficiency towards production. (W1, W2, W3, W4, O1, O3, O4)

SO4. Product mixing through the infiltration most of its production on the coconut industry. (S2, S3, S4, S5, O3, O4)

WO5. Renegotiation of contracts through stricter bidding regulations. (W4, W5, O1, O3)

THREATS – T

ST STRATEGIES

WT STRATEGIES

T1. Cocolisap infestation damaging coconut production.

ST1. Modification of product line to meet broader range of customer needs that are unique to the market and cannot easily be duplicated. (S2, S3, S5, T4)

WT1. Intensive large-scale contract growing on the top selling vegetable and fruit varieties. (W1, W2, T4)

T2. Decreasing area of production that may affect the satisfaction of demand for exports.

ST2. Research and development of current products based on the preferences of the different exporting countries. (S3, T4)

WT2. Reduction of incompetent and unprofitable local and international units of the business. (W1, W4, T1, T2, T3)

T3. Increased government intervention due to allegations of AgriNurture, Inc.’s CEO with Vice President Jejomar Binay.

ST3. Acquisition or at least increased control of fertilizer and pesticide suppliers. (S2, S3, T1)

WT3. Increase investments in machineries and other high-end equipment that would boost the production and decrease labor costs. (W3, W4, T2, T4)

O3. Increased global opportunities due to the ASEAN Integration in 2015.

O4. Productivity is expected to grow according to the National Economic and Development Authority. O5. Expected 6.4% increase in the 2015 GDP growth rate.

WT4. Right sizing through layoff workers with redundant roles in the organization. (W1, W5, T2, T3)

T4. Increasing intensity of competition due to ASEAN Market Integration in 2015. TABLE 4.1. The SWOT Matrix

B.

The Strategic Position and Action Evaluation Matrix The researchers used the SPACE matrix to evaluate the different variables and assign

scores considering how important they are for the situation of the company and analyze the four different areas that represent four quadrants in a graphic. Through this, the researchers were

AgriNurture, Inc. | 44

able to situate the company in one of these four quadrants and give a suggestion. According to the results of the SPACE matrix, the company should perform competitive strategies.

Internal Strategic Position a.

Financial Strength (FS) Financial Strength Factors Risks Involved in the Business Debt-to-Equity Ratio Leverage Liquidity Cash Flow Statement Total

Rating 3 1 2 2 3 10

TABLE 4.2. Financial Strength Factors Summary

 Risks Involved in the Business The company’s financial condition may be adversely affected by any disruption in the supply, or the price fluctuation of raw materials for its major products. The researchers gave the business a rating of 3 since the disruption in the supply of ANI’s products is significantly related to the unpredictable weather conditions of the country. Additionally, price fluctuation of raw materials is relative to the inflation rate, which is expected to grow by 4.1% in the following year thus, increased production costs.  Debt-to-Equity Ratio AgriNurture’s debt-to-equity ratio scored 1, due to its drastic increase to 110% in 2013 from 40% in 2012. This generally means that the company has been aggressive in financing its growth with debt and may outweigh the returns they could generate in the future.  Leverage The significant increase in the company’s leverage ratios shows that the company is taking risks. In addition, it could be considered as a risk for business since the company had a

AgriNurture, Inc. | 45

substantial drop in 2012 with only a slight recovery in 2013 based on its profitability performance (in terms of net income from years 2009 to 2013 and generated sales for the past five years).  Liquidity The overall liquidity ratios of the company show that it is currently liquid and has sufficient funds to pay short-term debts and other current liabilities. However, there was a significant drop from 255% in 2012 to 126% in 2013. This should be considered a threat to the company’s liquidity since the decrease was too much and could pose as a warning that eventually, the current liabilities will outweigh the current assets.  Cash Flow Statement The existing cash flow statement of the company led the researchers to a score of 2 because despite the continuous growth of the company’s cash flows, the researchers have concluded that such increases were primarily due to the large amount of loans and borrowings. b.

Competitive Advantage (CA) Competitive Advantage Factors Service and Product Quality Product Life Cycle Business Location Customer Loyalty Backward Integration Total

Rating -2 -3 -1 -2 -2 -10

TABLE 4.3. Competitive Advantage Factors Summary

 Service and Product Quality AgriNurture, Inc. has remained prominent throughout the years mainly because of the good quality of the products they offer. It continuously undertakes research and development of its products and technology to improve the quality and productivity of its products, which is

AgriNurture, Inc. | 46

proved by the accreditations and recognitions presented to them by local and international agencies.  Product Life Cycle With the current developments that the company is undergoing, AgriNurture is considered to be in the maturity stage of their product life cycle. Since majority of their products are still offered in fresh conditions and are in fact, received well by the market, the company is still left with opportunities to further expand their products into processed goods. With these modifications in mind, they might have to endure the costs in order to maintain competitive advantage.  Business Location ANI implements a geographical diversification strategy where its operations are spread across the country, depending on the existing season (wet or dry) to ensure continued production and trading. The wide dispersal of the locations of farmlands throughout the country enables ANI to spread the risk against weather disturbances, pest infestation, and man-made and natural disasters.  Customer Loyalty The company has attained product acceptance in major world markets such as the Greater China Region, Middle East and North America. Customers from these areas established good relations to the company, which allowed them to become one of the few companies to export their products directly to these countries. Thus, demonstrates that AgriNurture has gained tremendous customer loyalty over the years.  Backward Integration

AgriNurture, Inc. | 47

AgriNurture is currently engaging in backward integration in order to keep up with their “farm-to-plate” business model. Their complete and strategic integration of operations is a good indication that the company is strategizing to become the best in what they do. However, their objectives may be too much for them to handle considering their current financial strength.

External Strategic Position c.

Environmental Stability (ES) Environmental Stability Factors Political Situation ASEAN Market Integration 2015 Taxes and Regulatory Environment Economic Growth Rate of Inflation Total

Rating -5 -2 -2 -1 -2 -12

TABLE 4.4. Environmental Stability Factors Summary

 Political Situation The accusations toward AgriNurture, Inc. CEO, Mr. Antonio L. Tiu of being a dummy for Vice President Jejomar Binay and the engagement of his companies in anomalous business practices, led to the questioning of the company’s financial conditions, and resulted to increased government intervention such from the Securities and Exchange Commission.  ASEAN Market Integration 2015 Considering one of the main objectives of the ASEAN Integration in 2015 to create a single market and production base by ensuring a free flow of goods, services, investment, capital and skilled labor, AgriNurture, Inc. may in fact be one of the few agricultural businesses that would benefit from it due to their exporting expertise. According to the Food and Agriculture Organization of United Nations, the Philippines is also one of the top exporters and top

AgriNurture, Inc. | 48

producers of the products that ANI offers, which may constitute a greater opportunity for the business, rather than a threat.  Taxes and Regulatory Environment The Company’s operations are subject to various taxes, most of the revenues, which are export and agro-related are VAT free but subject to income tax. Processed goods that are exported are under Zero-Rated VAT Sales. In general, the Company attempts to pass higher taxes to its consumers by raising the prices of its products in the event there is any additional tax to be announced.  Economic Growth The Philippine GDP is expected to grow to 6.4% in 2015 relative to the 6.2% growth in 2014. This is due to the slowdown of government spending. On the other hand, GDP growth rate in 2014 is 6.2%, a percentage lower than 2013. Additionally, Asian Development Bank forecast shows that the Philippine GDP will only improve by 2% in 2015. Despite the slowdown, the economy is still considered as one of the fastest growing economies in the ASEAN countries, which will drive the demand for more agricultural products.  Rate of Inflation According to the Asian Development Bank, the inflation rate of the Philippines will increase in 2014 by 1.4% relative to the inflation rate of 3.0% in 2013 and decrease by 0.3% in 2015. However, the decrease in the inflation rate in 2015 is not substantial enough to reduce the costs incurred by the company. d.

Industry Strength (IS) Industry Strength Factors Demand and Supply Factors Productivity

Rating 2 4

AgriNurture, Inc. | 49

Ease of Entry into Market Capital Intensity Threat of Substitutes Total

5 2 3 16

TABLE 4.5. Industry Strength Factors Summary

 Demand and Supply Factors The demand and supply for ANI’s products may be affected by fluctuations in prices, as determined by seasonality, weather, quality and farm productivity. The price changes that the company makes in reaction to changes in economic fluctuations could affect the demand for the company’s products as well as the company’s profit margins, product pricing and net income.  Productivity The Company continuously undertakes research and development in products and technology to improve the quality and productivity of its products while at the same time ensuring their sustainability. Additionally, according to the Philippine National Economic and Development Authority, the net profit-cost ratio of two of the major revenue drivers of the company – Cavendish bananas and Carabao mangoes are expected to grow by 0.40% and 0.25% in 2016 while the level of post harvest losses are to decline by 3% and 6%, respectively. The productivity of the industry thus provides the company with an expected increase in productivity as well.  Ease of Entry into Market The entry barriers in the agricultural industry are high because of high capital requirements such as the acquisition of lands and the strong brand image of existing players. With AgriNurture’s present condition, they already have the capital required and are now one of the biggest players in the industry who have somehow gained customer loyalty.  Capital Intensity

AgriNurture, Inc. | 50

AgriNurture Inc., being in the agricultural sector is a labor-intensive company. Workers are more prioritized than the investments being made in the technological units they incur. Due to this, they spend income more on their labor costs rather than the utilities they possess.  Threat of Substitutes

There are currently no cost-effective substitutes for the crops offered in the agricultural sector because they offer crops that have been grown under strict systems.

The current substitutes for agricultural products are food supplements and other vitamins that are clearly priced higher than the current commodities provided by the agricultural sector. The effect of these substitutes is also not yet proven to be more effective than the natural ones. End users have high cost in switching to substitutes because these substitutes may not offer the same quality of products. Although some end users can produce it themselves, the production cost will be quite costly considering the high capital required and non-possession of the benefit of scale and access to competitive raw material sourcing. Financial Strength 5

Conservative Quadrant II

4 3

Aggressive Quadrant I

2 1

Competitive Advantage

Industry Strength

AgriNurture, Inc. | 51

-5

-4

-3

-2

-1

1

2

3

4

5

-1 -2

Defensive

-3

Quadrant III

Competitive

-4 -5

Quadrant IV

AGRINURTURE INC.

Environmental Stability FIGURE 4.3. The SPACE Matrix

C.

The Grand Strategy Matrix The researchers used the Grand Strategy Matrix to distinguish the appropriate strategies

for an organization to consider using the company’s market growth and competitive advantage.

 Market Growth

Gross Domestic Product (%) Inflation (%) 7.2 6.8 4.6 3.7

6.2

6.4

4.4 4.1

3.2 3.0

2011

2012

2013

2014E

2015E Source: Asian Development Bank

FIGURE 4.2. Economic Forecasts (% per year), Philippines, 2011 – 2015E

The Asian Development Bank (ADB) has decreased the growth outlook for the Philippines, they supported their analysis by citing the following factors which are; a slowdown in government spending, higher inflation and monetary tightening, all of which may dampen

AgriNurture, Inc. | 52

economic activity. Asian Development Outlook 2014 lessened its growth forecasts on the Philippine gross domestic product (GDP) to 6.2 percent from 6.4 percent this year and to 6.4 percent from 6.7 percent next year. ADB justified that the adjustments were due largely to a slowdown in government spending, which grew 0.9 percent in the first half of 2014 compared with 11.1 percent a year earlier.

 Competitive Advantage As a diversified agro-commercial corporation, the Company does not know of any one particular domestic competitor with the same (or similar) business model. The Company adopts the “farm-to-plate” model, which to this date, has not yet been successfully replicated by any other business entity. They have the Farming Group, the Export Group, the Distribution Group, the Foreign Trading Group and the Retail Group that completes its strategy of integrating its portfolio of services in line with its vision of becoming a global leader in providing nutrition from farm to plate. There are nevertheless competitors under its divisions such as Dizon Farms for the Farming Group. Other independent players like cooperatives farmers also play rivals of the company. Rapid Market Growth

Quadrant II Market Development Market Penetration Product Development Horizontal Integration Divestiture Liquidation Weak Competitive Position

Quadrant I Market Development Market Penetration Product Development Forward Integration Backward Integration Horizontal Integration Concentric Diversification Strong Competitive Position

AgriNurture, Inc. | 53

Quadrant III

Quadrant IV

Retrenchment Concentric Diversification Horizontal Diversification Conglomerate Diversification Divestiture Liquidation

Concentric Diversification Horizontal Diversification Conglomerate Diversification Joint Ventures

AGRINURTURE INC.

Slow Market Growth FIGURE 4.3. The Grand Matrix

D.

The Internal – External Matrix

The Internal-External (IE) matrix is another strategic management tool used by the researchers of this study in order to analyze the working conditions and strategic position the company. The Internal External Matrix or short IE matrix is based on the analysis of internal and external business factors which are combined into one suggestive model. Through the final ratings of the IFE and EFE matrices shown in Chapter 3, the IE Matrix suggests that the company hold and maintain their strategies. In this case, the tactical strategies should focus on market penetration and product development.

TOTAL IFE RATING 2.54

TOTAL EFE RATING 2.46

Strong 3.0 to 4.0

Average 2.0 to 2.99

Weak 1.0 to 1.99

High 3.0 to 4.0

I

II

III

Medium 2.0 to 2.99

IV

V

VI

Low 1.0 to 1.99

VII

VIII

IX

AgriNurture, Inc. | 54

TABLE 4.6. The Internal – External Matrix

E.

Summary of Strategies The summary of strategies tallied the different possible strategies that the company may

practice in order to raise their revenue using the three strategy formulation tools utilized earlier using the various information drawn from external and internal analysis of this research: (a) Space Matrix; (b) Grand Strategy Matrix and; (c) IE Matrix.

TABLE 4.7. Summary of Recommended Strategies

F.

The Quantitative Strategic Planning Matrix

Summary of Strategies Space Grand X X X X X X x x x X x

Strategy Options IE Total Forward Integration 1 Backward Integration 1 Horizontal Integration 1 Market Penetration x 2 Market Development 1 Product Development x 2 Concentric Diversification 1 Conglomerate Diversification 1 Horizontal Diversification 1 Joint Venture 2 Retrenchment 0 Divestiture 0 Liquidation 0 The last stage of strategy formulation is decision stage. In this stage it is decided that which way is most appropriate or which alternative strategy should be select. This stage contains QSPM that is only tool for objective evaluation of alternative strategies. A quantitative

AgriNurture, Inc. | 55

method used to collect data and prepare a matrix for strategic planning. It is based on identified internal and external crucial success factors. That is only technique designed to determine the relative attractiveness of feasible alternative action. This technique objectively indicates which alternative strategies are best. The QSPM uses input from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies. That is, the EFE Matrix, IFE Matrix, and Competitive Profile Matrix that make up Stage 1,coupled with the TOWS Matrix, SPACE Analysis, BCG Matrix, IE Matrix, and Grand Strategy Matrix that make up Stage 2, provide the needed information for setting up the QSPM (Stage 3). Strategic Alternatives Right Sizing

Cost Minimization

AS

TS

AS

TS

AS

TS

11%

4

0.44

3

0.33

4

0.44

S2. Complete and strategic integration of operations.

8

4

0.32

1

0.08

3

0.24

S3. Greenergy Holdings, Inc.’s acquisition of 26% of AgriNurture, Inc.’s stocks

6

3

0.18

1

0.06

2

0.12

S4. Foreign and domestic accreditations

7

2

0.14

0

0

1

0.07

S5. Strong strategic partnerships in the industry

9

1

0.09

0

0

1

0.09

S6. Expansion of banana farm in Indonesia

10

3

0.30

1

0.10

2

0.20

Weight

Product Mixing

Strengths S1. Distinctive “farm-to-plate” business model in the local market.

AgriNurture, Inc. | 56

W1. Diversified business model leads to the mismanagement of some subsidiaries

4

2

0.16

1

0.04

2

0.08

W2. Incapability of dividend declaration

4

2

0.08

2

0.08

0

0

W3. Continual leasehold of lands for agricultural production

10

4

0.40

2

0.20

2

0.20

W4.Excessive cost of sales and services.

18

3

0.54

1

0.18

1

0.18

W5. Excessive operating costs.

13

3

0.39

1

0.13

1

0.13

Total

100%

3.15

1.20

1.75

Opportunities O1. Increased awareness to further develop strategies in the banana industry.

14

4

0.56

1

0.14

2

0.28

O2. AgriNurture Inc. adds pineapple as the new fruit product for export.

15

3

0.45

3

0.45

2

0.30

O3. Increased global opportunities due to the ASEAN Integration in 2015

11

3

0.33

2

0.22

1

0.11

O4. Productivity is expected to grow according to the National Economic and Development Authority

10

3

0.30

1

0.10

1

0.10

O5. Expected 6.4% increase in the 2015 GDP growth rate.

8

2

0.16

1

0.08

1

0.08

10

3

0.30

1

0.10

1

0.10

Threats T1. Cocolisap infestation damaging the coconut production.

AgriNurture, Inc. | 57

T2. Decreasing area of production affecting the satisfaction of demand for exports

11

3

0.33

0

0

1

0.11

T3. Increased government intervention due to allegations of AgriNurture, Inc.’s CEO with Vice President Binay

9

1

0.09

0

0

0

0

T4. Increasing intensity of competition due to ASEAN Market Integration in 2015.

12

2

0.24

2

0.24

2

0.24

Total

100%

5.80

2.53

3.07

TABLE 4.8. The Quantitative Strategic Planning Matrix

Chapter V

Recommended Solution, Implementation and Justification A.

Minimize cost of sales and operating expenses through right sizing and

renegotiation of contracts. AgriNurture should decrease the rank and file labor force of the company to decrease the large salaries and wages expenses that the company incurs.

Employees Executives Consultants Farmers Rank and File Salaries Expense

REVENUES

2010 40 0 367 200 39,381,432

No. of Employees per Year 2011 2012 29 40 1 5 179 138 219 609 54,949,066 74,958,569

COMPARATIVE INCOME STATEMENT 2009 2010 2011 1,017,682,20 1,585,011,759 2,253,760,239

2013 41 6 133 697 118,806,718

2012 2,329,946,985

2013 2,926,429,244

AgriNurture, Inc. | 58

9

270,707,544

(1,734,728,854 ) 519,031,385

(1,944,724,778 ) 385,222,207

(2,348,073,422 ) 578,355,822

209,490 (95,043,892) 0

57,166,068 (176,493,028) 0

193,709,918 (368,970,035) (23,157,766)

40,382,971 (386,846,271) (9,907,502)

205,178,250 (678,704,301) (4,428,348)

56,881,536 0 3,837,569 (20,340,457) 40,378,648

151,380,584 0 95,032 (16,687,620) 134,787,996

320,613,502 0 642,087 (49,950,841) 271,304,748

28,851,405 (183,937,350) 234,785 (35,564,234) (190,415,394)

100,401,423 0 2,366,896 (56,554,415) 46,213,904

4,637,816 50,864 4,688,680

24,185,597 17,050,934 41,236,531

26,154,504 29,048,870 55,203,374

18,517,139 (63,921,982) (45,404,843)

10,711,750 13,055,973 23,767,723

0

545,170,823

0

0

0

35,689,968

638,722,288

216,101,374

(145,010,551)

22,446,181

Cost of Sales

(865,966,271)

(1,314,304,215)

Gross Profit

151,715,938

Other operating income Operating Expenses Othe operating expenses Operating Profit (Loss) Losses on biological asset Finance income Finance costs Income (Loss) before tax Provision for income tax Current Deferred Gain or change of fair value of trademark Net Income (Loss)

Upon analyzing the comparative financial performance of the company we have come up to set a benchmark with regards to the number of employee that the company employed specially in the rank and file section, we noticed that from 2010-2013 the number of the Rank and File employee increase from 200 to 697 which create an adverse effect on the operating expenses from 95M to 678.7M and having only a 3% effect of change in the revenue for 2012 and 26% in 2013 (please see horizontal analysis). As we analyze the extracted company’s comparative income statement below, if the company doesn’t incurred a gain or change of fair value of trademark the net income in year 2010 will be 93,551,465 (P638,722,288 less 545,170,823) employing only 200 rank and file employee, and if the year 2012 the company doesn’t incurred a loss of 183,937,350 in effect the company would have a net income of 38,926,799 employing 609 rank and file employee, as for this analysis we come up to lessen the number of rank and file employee from 697 to 219 employee based on the 2011 financial performance because of the fact that even though the company employing only 219 number of rank and file employees still the company earned P216,101,374.

AgriNurture, Inc. | 59

HORIZONTAL ANALYSIS IN PERCENTAGE 2011 2012 42% 3% 32% 12% 92% -26%

REVENUES Cost of Sales Gross Profit

2010 56% 52% 78%

Other operating income Operating Expenses Othe operating expenses

27188% 86% 0%

239% 109% 0%

-79% 5% -57%

408% 75% -55%

166%

112%

-91%

248%

-98% -18% 234%

576% 199% 101%

-63% -29% -170%

908% 59% -124%

421% 33423% 779%

8% 70% 34%

-29% -320% -182%

-42% -120% -152%

1690%

-66%

-167%

-115%

Operating Profit (Loss) Losses on biological asset Finance income Finance costs Income (Loss) before tax Provision for income tax Current Deferred Gain or change of fair value of trademark Net Income (Loss)

2013 26% 21% 50%

Using this analysis we come up with a 69% target decrease in the salaries and wages expenses under the rank and file employees (please see below computation).

Number of Rank and File employee in 2013 Number of Rank and File employee in 2011 Decrease in Rank and File Employee

Number of Employee

In percentage Decrease

697 219 478

69%

The company’s employees are mostly under the rank and file types comprising 77.08% of the overall labor force, 70% of this are under contractual agreement while the 30% are regular employees, relative to farmers who only comprise 17.46% of it. With this 69% target decrease in the salaries and expense under rank and file employees it will lessen the company’s expenses from 118,806,718 to 85,052,062 creating a savings amounting to 33,754,656.

AgriNurture, Inc. | 60

2013

Salaries, wages and other employee benefits 13th Month Pay Savings TOTAL

Share of the Rank and File employee (77.08%)

118,806,71 8

91,576,218

Effect of Change in the Rank and File (69%)

69% Target decrease 28,388,628

90,418,090

5,366,028 33,754,656

5,366,028 85,052,062

Separation Pay – Effect on the company’s Operating Expenses Decrease in Rank and File Employe e Employee start in the year 2012 Employee start in the year 2013 TOTAL

390 88

Minimu m Wage Rate

Monthly Salary

Yearly Salary

11,226 11,226

429.0 0 429.0 0

478

Year of Tenure

Separatio n Pay

15,760,80 3

2

31,521,60 6

3,556,284

1

3,556,284

9,317,086

35,077,88 9

Source: Department of Labor and Employment

Note: AgriNurture is currently purchasing finished goods from independent farmers. The company’s purchases account is relatively high compared to the harvested agricultural produce. In 2013, 90% of the cost of sales and services is allotted to the purchases account alone meanwhile; only 8% is derived from the company’s own resources. In order to reduce these purchases the company should review the bidding process and further review the standard price in the market versus company price. Based on our research we found out that the company can lower their purchase cost up 17% in Carabao Mango, 12% in Cavendish Banana and 11% in Coconut water. IMPACT ON THE COMPANY’S PERFORMANCE Through minimizing the company’s cost of sales and operating expenses in the course of right sizing the impact will be felt in the second year for in the first year the company will

AgriNurture, Inc. | 61

sacrifice to pay separation pay to those rank and file employees that will be discharge, the company will sacrifice an amount of 4.9M or 22% decrease on net income, though this change in the first year is negative it will be offset in the second year that will bring a 41.3M net income with an increase of 23.8M or 137% increase on its net income. We recommend this strategy for it has a greater impact on the company’s financial performance. AGRINURTURE INC. AND ITS SUBSIDIARIES INCOME STATEMENT IMPACT ON THE COMPANY'S PERFORMANCE STRATEGY 1 (Cost Minimization)

REVENUES Cost of Sales Gross Profit Other operating income Operating Expenses Othe operating expenses Operating Profit (Loss) Losses on biological asset Finance income Finance costs Income (Loss) before tax Provision for income tax Current Deferred Gain or change of fair value of trademark Net Income (Loss) Change in Amount Change in Percentage B.

2nd Year Effect of Change 2,926,429,244

2013

1st Year Effect of Change

2,926,429,244 (2,348,073,422 ) 578,355,822

2,926,429,244 (2,348,073,422 ) 578,355,822

(2,348,073,422)

205,178,250 (678,704,301) (4,428,348)

205,178,250 (680,027,534) (4,428,348)

205,178,250 (644,949,645) (4,428,348)

100,401,423 0 2,366,896 (56,554,415) 46,213,904

99,078,190 0 2,366,896 (56,554,415) 44,890,671

134,156,079 0 2,366,896 (56,554,415) 79,968,560

10,711,750 13,055,973 23,767,723

14,365,015 13,055,973 27,420,988

25,589,939 13,055,973 38,645,912

0

0

0

22,446,181

17,469,683 (4,976,498) -22%

41,322,648 23,852,965 137%

578,355,822

Increase sales revenue by increasing product volume through the use of various

techniques to fully utilize idle assets such as farmland.

AgriNurture, Inc. | 62

The Group procures its vegetables and fruits (mangoes, banana, and coconut) from various sources, ranging from small farmers to cooperatives and big producers. Through this, suppliers hold great controls over the prices it offers to ANI at the same time. In order to mitigate these risks, a significant portion of the investment proceeds shall be devoted to the full utilization of its farmlands by cultivation of additional biological assets. ANI intends to develop and operate no more than 2.5 hectares of productive farmland in different areas that would significantly reduce or eliminate its dependence on third party sources for its supplies and improve its ability to control its quality and prices. With the 2.5 hectares increase in production the company can have an 8.28% increase in its revenue (see computation below). At present, the land areas owned by ANI’s farming division are as follows:

Location

Aggregate Area (In Has.)

Arayat, Pampanga Magalang, Pampanga Subic, Zambales Pamapanga – Tarlac La Trinidad, Benguet Sorsogon Antipolo, Rizal Total

% Increase per Hectares

20 10 7 50 34 6 10 137

13% 25% 36% 5% 7% 42% 25% 22%

Effect to revenue computation REVENUES

Percentage Change

2013

Own harvest Purchase outside Total

Effect of change in Revenue

292,642,924

22.00%

64,381,443

2,633,786,320

100.00%

2,633,786,320

2,926,429,244

2,698,167,763

Effect to cost of sales 2013

% Share in Revenue

Effect of change to COS

AgriNurture, Inc. | 63

Own Harvest

64,381,443

80.20%

51,633,918

The 80.2% rate is from the vertical analysis which is the percentage share of cost of sales to its revenue for the year 2013. Through its proper used of their idle farmland the company can maximize their production and contribute an amount of 64.3M on its revenue and in effect increase net profit of 4.5M or 20% the effect is minimal compare to Strategy 1 due to higher cost of sales. STRATEGY 2 (Utilization of Farmlands)

578,355,822

1st Year Effect of Change 2,990,810,687 (2,399,707,34 0) 591,103,347

205,178,250 (678,704,301) (4,428,348)

205,178,250 (678,704,301) (4,428,348)

205,178,250 (678,704,301) (4,428,348)

100,401,423 0 2,366,896 (56,554,415) 46,213,904

113,148,948 0 2,366,896 (56,554,415) 58,961,429

113,148,948 0 2,366,896 (56,554,415) 58,961,429

10,711,750 13,055,973 23,767,723 0 22,446,181

18,867,657 13,055,973 31,923,630 0 27,037,799 4,591,618 20%

18,867,657 13,055,973 31,923,630 0 27,037,799 0 0%

2013 REVENUES Cost of Sales

2,926,429,244 (2,348,073,422)

Gross Profit Other operating income Operating Expenses Othe operating expenses Operating Profit (Loss) Losses on biological asset Finance income Finance costs Income (Loss) before tax Provision for income tax Current Deferred Gain or change of fair value of trademark Net Income (Loss) Change in Amount Change in Percentage

C.

2nd Year Effect of Change 2,990,810,687 (2,399,707,340) 591,103,347

Increase sales revenue through product mixing. AgriNurture Inc. should execute product mixing in order to increase revenues and be

more competitive in the ASEAN Market Integration.

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Statistical evidence suggests that intra-subregional trade among SAFTA members is rising slowly and steadily. As indicated in Table 1, South Asia’s intra-subregional trade share increased from 2.7% in 1990 to 4.3% in 2011. Also, Figure 1 provides a comparative picture of intra-subregional trade shares for the member states of SAARC (SAARC: South Asian Association for Regional Cooperation), the Association of Southeast Asian Nations (ASEAN), and ASEAN+3. It clearly shows that SAARC largely trails the other two in terms of subregional integration. For example, in 2011, SAARC’s intra-subregional trade was only 4.3%, whereas the corresponding figures for ASEAN and ASEAN+3 were 26% and 39%, respectively. SAARC’s share is still very low when compared with corresponding figures from other regions, but the positive trend is clear. As such, policymakers and business communities in South Asia have become increasingly interested in economic integration in South Asia and the potential benefits that may come along with it. (ADB, 2013) Table 1: South Asia’s total trade within the sub region and with the world

Source: Asian Development Bank AgriNurture, Inc. mainly focuses its operations through the local and international production and distribution of Cavendish bananas, Carabao mangoes, coconut water and other products.

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Others; 10%

Coconut; 20% Cavendish Banana; 50%

Carabao Mango; 20%

Figures 3.8 to 3.10 show that the Philippines are one of the top producers of bananas, mangoes and coconuts in the world. However, the ASEAN Market Integration may pose a threat to the demand of Cavendish bananas since neighboring ASEAN countries; especially Thailand and Malaysia are regarded as two of the top contributors to the crops (banana and mango) industry in the world and are considered to offer the same products at lower prices. Thus, the company is now suggested to infiltrate most of its production on the coconut industry since the Philippines is second largest producer of it in the world market with a lower price advantage over other competitors. The effect of this ASEAN market integration in the financial performance is minimal due to the fact that the intra-subregional trade share increased from 2.7% in 1990 to 4.3% in 2011 which means for 10 years only 1.6% increase in the trade share compare to the percentage change of cost of sales having an average of 29% and considering also the vertical analysis of ANI’s financial performance having an 82% average percentage of cost of sales to revenue, whether the product mix create a positive impact on its revenue the effect on the net profit is only minimal. AGRINURTURE INC. AND ITS SUBSIDIARIES INCOME STATEMENT HORIZONTAL ANALYSIS IN PERCENTAGE AgriNurture, Inc. | 66

2009 REVENUES Cost of Sales Gross Profit

REVENUES Cost of Sales Gross Profit

2010 56% 52% 78%

2011 42% 32% 92%

2012 3% 12% -26%

2013 Average 26% 32% 21% 29% 50% 49%

AGRINURTURE INC. AND ITS SUBSIDIARIES INCOME STATEMENT VERTICAL ANALYSIS IN PERCENTAGE 2009 2010 2011 2012 2013 Average 100.0% 100.0% 100.0% 100.0% 100.0% 100% -85.1% -82.9% -77.0% -83.5% -80.2% -82% 14.9% 17.1% 23.0% 16.5% 19.8% 18%

Chapter VI

BIBLIOGRAPHY http://www.niccep.dti.gov.ph/cluster.php?code=9 http://www.oxfam.org.nz/sites/default/files/reports/Conditions%20in%20Philippine%20Banana %20Plantations%20Exporting%20to%20New%20Zealand%20.pdf http://pdf.usaid.gov/pdf_docs/PNADH939.pdf http://www.congress.gov.ph/cpbo/images/PDF%20Attachments/CPBRD%20Policy%20Brief/02PB%20Coco%20Levy.pdf http://ageconsearch.umn.edu/bitstream/10977/1/pb92on01.pdf http://www.philmech.gov.ph/phindustry/banana.htm

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Gamble, J., Thompson, A & Peteraf, M. (2012). Essentials of strategic management: The quest for competitive advantage (3rd edition). New York, NY: McGraw-Hill. http://www.investing.com/equities/agrinurture-financial-summary http://www.heritage.org/index/country/philippines http://www.niccep.dti.gov.ph/cluster.php?code=9 http://www.oxfam.org.nz/sites/default/files/reports/Conditions%20in%20Philippine%20Banana %20Plantations%20Exporting%20to%20New%20Zealand%20(2).pdf http://pdf.usaid.gov/pdf_docs/PNADH939.pdf http://www.congress.gov.ph/cpbo/images/PDF%20Attachments/CPBRD%20Policy%20Brief/02PB%20Coco%20Levy.pdf Philippine Development Plan, 2011-2016, © 2011, National Economic Development Authority, http://www.neda.gov.ph/wp-content/uploads/2013/10/pdprm2011-2016.pdf http://www.thecountriesof.com/top-10-banana-producing-countries-in-the-world/ http://faostat.fao.org/site/291/default.aspx http://www.tradingeconomics.com/philippines/gdp-growth-annual/forecast http://www.worldbank.org/content/dam/Worldbank/document/EAP/Philippines/Philippine %20Economic%20Update%20March%202014.pdf http://www.strategicmanagementinsight.com/tools/mckinsey-7s-model-framework.html http://www.adb.org/sites/default/files/publication/59685/ado2014update_1.pdf Bangko Sentral ng Pilipinas (http://www.bsp.gov.ph) Bureau of Local Government Finance (http://www.blgf.gov.ph) Bureau of the Treasury (http://www.treasury.gov.ph) http://www.agmrc.org/media/cms/ec722_c52b3fa397dbb.pdf N.A. (2013). The Importance of Agriculture to the Philippine Economy. Hubpages. Retrieved from http://pulse101.hubpages.com/hub/The-Importance-of-Agriculture-to-the-PhilippineEconomy AgriNurture, Inc. | 68

Habito, C., & Briones, R. (N.D). Philippine Agriculture over the Years: Performance, Policies and Pitfalls. Retrieved from http://siteresources.worldbank.org/INTPHILIPPINES/Resources/Habito-word.pdf Retrieved last September 23, 2014 from http://www.slideshare.net/gceyre/factors-affectingfarming N.A.

(n.d.) Factors affecting farming. revisionworld. Retrieved from http://revisionworld.com/gcse-revision/geography/agriculture/factors-affecting-farming

Hofstrand, Don. (2008). MarketingStrategies. Agricultural Marketing. Retrieved http://www.agmrc.org/business_development/operating_a_business/marketing/articles/ma rketing-strategies/ Bureau of Plant Industry. (2009). Rules and Regulations. http://pqs.da.gov.ph/index.php/rules-and-regulations/export

Retrieved

from

Philippine Statistics Authority. (1998). Performance of Philippine Agriculture. Retrieved last September 29, 2014 from http://www.bas.gov.ph//ids=agriperformance Retrieved last September 25, 2014, from http://www.sme.com.ph/member-suppliers/foodagriculture/suppliers.php?page=fruitsoflife http://siteresources.worldbank.org/INTCOMRISMAN/Resources/RapidAgriculturalSupplyChainR iskAssessmentConceptualFramework.pdf

Chapter VII AgriNurture, Inc. | 69

APPENDICES

Prof. Gary M. Galang OIC Chair, Dep’t. Of Financial Management College of Arts and Sciences San Beda College December 3, 2014

Dear Sir, Subject: Appeal to Re-Defense PAX! We, the AgriNurture Inc. group, formed by Jackielyn S. Gallera, Paolo A. Gregorio, Niña Jane S. Pineda, Sarah Lyn A. Sanchez, and Bianca Marie O. Villa, so humbly request to undergo re-defense on the 24 th of January 2015 in completion of our Strategic

AgriNurture, Inc. | 70

Management and Securities Analysis courses. In line with this, we are subscribing to pay the respective fee required for this re-defense. We are hoping for your positive response. Thank you for your kind consideration and God bless.

In Saint Bede, AgriNurture Inc. Group Thru:

Jackielyn S. Gallera Paolo A. Gregorio Niña Jane S. Pineda

Sarah Lyn A. Sanchez Bianca Marie O. Villa

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