In Partial Fulfillment of the Requirements in the Subject

Practicum 2 – On the Job Training with Finance Research

RFM Corporation (STEP 1 – Company Analysis)

December 2017
Company Information:
NAME:
TICKER SYMBOL:
PRIMARY SECTOR AND INDUSTRY:
CURRENT STOCK PRICE:
MARKET CAPITALIZATION:
RFM Corporation
RFM
Industrial – Food, Beverage & Tobacco
4.98/share (as of December 22, 2017)
PHP 17,418,999,509 (as of December 22, 2017)

Company Overview:

RFM Corporation (RFM), a diversified food establishment was formerly a flour manufacturing company
in the Philippines and known as “Republic Flour Mills Incorporated” in 1957. Over a decade it has
expanded to producing manufactured cooking oil and margarine. Also, the company has di ve rsi fi ed to
poultry and livestock production, drinks, processed meat, and ice cream.

The company also handles non-food business, which includes barging services and leasing of commercial
and office spaces.

Over the years the company has had multiple acquisitions and agreements with other businesses to
provide various lines of products for consumers. It entered into a licensing agreement with Peterson
Industries and H & N Layers to breed day-old chickens in 1971, an exclusive licensing agreement with
Swift and Company of Illinois (now Armour Swift & Echrich of the ConAgra Group) in 1973 and e nte re d
the Company to the canned products industry. The “Swift” brand was eventually purchased by the
company in 1987, allowing full rights to its use in the Philippines.

In 1989 the Company purchased Cosmos Bottling Corporation (Cosmos), a Filipino soft drink company,
which produces various brands including Pop Cola, Diet Sarsi, Sunkist, and Sparkle. A year after the
Company acquired the “selecta” trademark and invested in machinery under a new company, Selecta
Dairy Products, Inc. to mass produce the locally famous ice cream flavors within international health
standards.

Other notable acquisitions of the Company were of the Rolling Pin trademark which was in line with
expanding to the bakeshop business, of Little Ceasar’s Pizza brand of the USA for food franchising.

In late 2012, RFM entered into a Trademark and Asset Purchase Agreement with The Pacific Meat
Company, Inc. (PMCI). The agreement included RFM’s sale of the “Swift” brand, inclusive of the finishe d
goods and raw material inventories, goodwill, trademark, and specific machinery and equipment, as well
as product formulations and other technical information relating to the production. (First Metro
Investment Corporation, 2011)

The Company’s current purchase was in early 2014, which was of the Royal pasta trademark and
inventory stocks from the Unilever Philippines, Inc. RFM believes this would allow a tighter market
leadership in the pasta category. (RFM Corporation and Subsidiaries, 2015)

Presently, RFM is keeping track of a steady annual increase of net income. Its primary re ve nue for the
period is their Selecta ice cream because of the relatively warm weather. Concepcion, the curre nt CEO,
has noted in a statement that the Company ensures growth momentum for the long term. (RFM
Corporation and Subsidiaries, 2017)
Directors and Management:

Management Officers:
President and CEO Jose Ma. A. Concepcion III
CEO and Managing Director, Ice Cream and
John Marie A. Concepcion
Marketing Adviser for Consumer Group
Senior VP and General Manager-Consumer Group Ma. Victoria Herminia C. Young
VP, CFO and Treasurer, and Concurrent General
Enrique Oliver I. Rey-Matias
Manager-Flour Group
VP and Head-Operations Melchor B. Bacsa

VP and Head-Sales Martin Anthony R. Tupaz

VP and Head-Supply Roderick P. Perdigon

Assistant Treasurer Philip V. Prieto

Assistant VP-Research and Development,
Susan A. Atienza
Institutional Group
AVP & Head-Corporate Legal and Labor Relations Jufil E. Siquian
Head, Human Resources Maria Patrocinio V. Valdez

President and CEO – Jose Ma. A. Concepcion III

Jose Ma. A. Concepcion III holds numerous positions aside from being the president and CEO of RFM
Corporation. He is concurrently the Board Chairman of Unilever RFM Ice Cream, Inc. (URICI) and a Co-
Chairman of Integrated Global Low-Temperature, (IGLO) Philippines, Inc. He is also a part of the board as
director of Concepcion Industries Inc., the most significant air-conditioner and refrigerator manufacturer
in the country. (Bloomberg, 2017)

He is the founding trustee of the Philippine Center for Entrepreneurship - Go Negosyo. He previously
was an awardee of the Ten Outstanding Young Men of the Philippines (TOYM) in 1995 and Ti me Gl obal
100 List of Young Leaders for the New Millennium in 1994. Also, he associates with significant busi ness
and industry and various socio-civic associations. (FPACC Trade Mission, n.d.)

Given his accomplishments and the steady movement of RFM Corporation with him as the CEO and
President for roughly 28 years, he is still capable of running the company for the next decade. His
leadership prowess is seen in the performance of the business, as illustrated in the annual i ncre ase of
their financial ratios. Another evident occurrence that portrays his management of the company was
RFM’s performance during the Asian Financial Crisis in 1997. Even though it halted the expansion of the
business, and was forced to sell many of its operating subsidiaries due to the early payment of a n $83.7
million bond, the company still survived along with reportedly Selecta (a subsidiary) becoming the
market leader in the Philippine country in the ice cream industry in the same year. (Unilever Philippines,
2017)
Board of Directors:

Chairman Jose S. Concepcion, Jr.

Vice Chairman Ernest Fritz Server

Directors
Jose Ma. A. Concepcion, III
John Marie A. Concepcion
Ma. Victoria Herminia C. Young
Felicisimo M. Nacino, Jr.
Joseph D. Server, Jr.
Francisco A. Segovia
Raissa Hechanova Posadas
Independent Directors

Lilia R. Bautista
Romeo L. Bernardo

Business Model

The Group and the Products

RFM Corporation

RFM Corporation divides into two principal business segments:

 Institutional Segment
-focuses on manufacturing and selling of flour, bakery and bakery products to
institutional customers.
 Consumer Segment
-offers manufacturing and selling of dairy products such as ice cream, milk and vari ous
juice drinks, pasta products, and flour and rice-based mixes.

A. Institutional Segment
Republic Special Altar Bread
Cinderella Customized Flour
Hi-Pro Majestic All-Purpose Flour
Señorita Cake Flour
B. Consumer Segment
Fiesta Selecta Moo
Royal Sunkist
Selecta White King
Selecta Fortified

Subsidiaries
Food Businesses

Unilever RFM Ice Cream, Inc.

A joint venture enterprise owned by RFM Corporation and Unilever Philippines, Inc. It primarily
manufactures, markets, distributes and sells, imports and exports ice cream products. (RFM Corporation
and Subsidiaries, 2017)

Interbake Commissary Corporation

It provides and operates a high-speed Bun Production Line. It is first and continues to be the biggest
customer is McDonald’s, providing bun requirements over 15 stores in Luzon, as well as muffin
requirements nationwide.

RFM Foods Philippines Corporation

A joint venture between the Company and Indofood of the Salim Group of Indonesia. Its mai n product
lines are instant noodles of various flavors and packaging. Indofood however, had its operations come to
a halt due to operating losses. The company was renamed to RFM Foods Philippines Corporation and
remains dormant.

Southstar Bottled Water Company, Inc.

Manufactures and distributes all kinds and classes of bottled water and similar products. Southstar,
however, suspended its operations due to sustained operating losses.

Engrain – RFM Pacific, Inc.

A joint venture between RFM and Engrain LLC. It is engaged in selling, marketing, and distributing
wholesale enzyme-enhanced flour and products for the Philippines and Asia Pacifi c market.

FWBC Holdings, Inc.

Involved in processing and distribution of bottled mountain spring water. It is 83.38% owned by RFM
Corporation. The company, however, ceased operations due to operating losses.
Non-Food Businesses

RFM Equities, Inc.

It operates to hold and manage RFM Corporation’s holding in two financial services subsidiaries –
Conglomerate Securities and Financing Corporation (CSFC) and RFM Insurance Brokers, Inc. (RIBI). CSFC
provides consumer-financing services mainly to managers and employees of the RFM Group. RIBI
meanwhile services the insurance needs. In January 2010, shares in both CSFC and RIBI were sold. (RFM
Corporation and Subsidiaries, 2017)

Rizal Lighterage Corporation

It is engaged in providing lighterage and cargo handling services.

Cabuyao Logistics and Industrial Center, Inc.

Formerly Cabuyao Meat Processing Corporation in 2005, it changed its name to Cabuyao Logistics and
Industrial Center, Inc. because of the discontinuance of the operations in the company’s meat di vision.
Subsequently, the operations of the milk and juice division were transferred to the company’s premi ses
and facilities in the CLIC.

WS Holdings, Inc.

A company 60% owned by RFM corporation and 40% owned by Uni lever Philippines, Inc. Its primary goal
is to invest, purchase, and own shares of stocks, bonds and other securities of obligations .

Selecta Wall’s Land Corporation

Selecta Wall’s Land Corporation operates to acquire, own, use, develop and hold for the inve stment of
all kinds of real estate. It is 35% owned by RFM Corporation.

Invest Asia Corporation

The Corporation’s operation includes leasing commercial and office spaces to its associ ate s and thi rd -
party tenants.
BCG MATRIX

STARS:

CASH COWS:

QUESTION MARK: DOG:

The company is progressing and consistently
achieving profit rises.

STAR

Fiesta, Royal, and White King are the Company’s products which generate a significant amount
of revenue because of the aggressive market share, but also consume large amounts of cash due
to their growth rate. According to the 2016 Annual Report, RFM owns 33% volume share and
35% value share in the pasta manufacturing industry. RFM also strengthens and maintains its
position in the spaghetti sauce market, through its brand Fiesta which overtook UFC as the
second most significant brand in spaghetti sauce with 18% volume share for November 2016.
White King, on the other hand, ended with a 35% growth in volume than the prev ious year.
(RFM Corporation and Subsidiaries, 2017)

Factors that contribute to the vast spending of RFM for the brands to maintain its position
includes Fiesta’s launch of a new campaign of affordable pasta, “Fiesta Spaghettipid.” Another is
Royal’s makeover for 2016. The brand relaunched with a blue packaging and widened its
consumers by introducing a new product, “Royal Sweet Tomato Basil Spaghetti Sauce .” (About
RFM Corporation, 2011)

CASH COWS

The Selecta line generates more than what is invested by the Company. RFM stated i n a re port
that the Selecta Ice Cream, under the partnership with Unilever Philippines, Inc. dominated with
a market share of 72%. Selecta also relaunches the Co-brand line with Hershey’s tapping into
the more premium segment. (Subido, 2017)
 Selecta Fortified, which is labeled under the Selecta White Business continues its double-digit
growth performance for 2016. It has 24% volume market share and is the “fastest growing
ready-to-drink white milk local brand.” (Francia, 2017)

QUESTION MARK

Selecta Moo, however, has had flat growth compared to the previous years due to the
appearance of substitutes such as yogurt and flavored milk drinks. Although it delivered strong
sales performance, these levered with aggressive advertising and massive consumer
promotions. (RFM Corporation and Subsidiaries, 2017)

Sunkist products, which consists of ready to drink juices have had more competitions in 2016.
Due to minimal growth, Sunkist re-launched new packaging design in the 4th Quarter of the
same year. (COL Financial Group, Inc., 2017)

FIVE FORCES MATRIX

Threats of New Entrants

Industry Competitors Power of Buyer

Power of Supplier Competitive Rivalry
Direct
-Households

-Agricultural Properties, Intermediary

Wheat farmlands  Institutional Segment
-Fast Food Chain
-Poultry, Meat houses (McDonald’s)
-Bakeries
 Consumer Segment
-Convenience Stores
-Supermarkets

Threats of Substitution

-Local Ice Cream Products

-Powdered Milk and Juices
-Yogurt
-Sardines
Competitive Advantage

Diversified Product Lines

The Company as shown in the growing brands under their group have penetrated different subsectors in
the food and beverages industry. RFM primarily concentrated in manufacturing flour products, but ove r
the years has diversified and earned a reputation for their different lines of products. These include
pasta, processed meat, poultry, dairy, beverages, ice cream and of course, flour.

Strong Annual Revenue Growth

RFM corporation has consistently achieved a rise in revenue in 5 years. Although there were slowdowns
in 2014 and 2016, according to COL Financial’s Analysis report, the company still has a firm hold on thei r
position in the market. (COL Financial Group, Inc., 2016)

Revenue

PHP in Millions
2012 2013 2014 2015 2016
10,998 10,240 11,010 11,982 12,699

Net Income

PHP in Millions
2012 2013 2014 2015 2016
686 788 838 906 1002

Net Profit Margin

In Percentage
2012 2013 2014 2015 2016
6.1 7.7 7.6 7.6 7.9

Debt-to-Equity Ratio

In Percentage
2012 2013 2014 2015 2016
23 60 56 45 45

Price-to-Earnings Ratio

In Percentage
2012 2013 2014 2015 2016
19.2 16.4 21.63 16.27 17.13
References

About RFM Corporation. (2011). Retrieved December 22, 2017, from

https://www.scribd.com/document/61165971/About-RFM-Corporation

COL Financial Group, Inc. (2014). Philippine Daily Notes - (RFM). Pasig: COL Financial Group, Inc.

COL Financial Group, Inc. (2015). RFM: 3Q15 earnings growth slows to 3.3%, as operating margins
decline. Pasig: COL Financial Group, Inc.

COL Financial Group, Inc. (2016). RFM: 1H16 earnings up 8% to Php508Mil, in line with consensus. Pasig:
COL Financial Group, Inc.

COL Financial Group, Inc. (2016). RFM: 2015 net income up 9.0% to Php908Mil, in line with consensus.
Pasig: COL Financial Group, Inc.

COL Financial Group, Inc. (2016). RFM: 9M16 profits up by 8.8% to Php683Mil, below consensus
estimates. Pasig: COL Financial Group, Inc.

COL Financial Group, Inc. (2017). RFM: 4Q16 profits up 14.4% y/y, in line with consensus estimates.
Pasig: COL Financial Group, Inc.

First Metro Investment Corporation. (2011). RFM Rebuilds Brands; Sees Net Profits Growing to
PHP750M. Makati: First Metro Investment Corporation.

Francia, A. B. (2017, April 20). RFM Earnings Breach P1-Billion Mark in 2016. Retrieved from
https://www.pressreader.com/philippines/business-world/20170420/281590945441534

Jose Ma. Concepcion, III. (n.d.). Retrieved from http://fpacctrademission.com/speakers/jose-ma-

concepcion-iii/

Morningstar. (2017). Quotes: RFM. Retrieved from quotes.morningstar.com:

http://quotes.morningstar.com/stock/analysis-report?t=XPHS:RFM&region=phl&culture=en-
US&productcode=MLE&cur=

RFM Corporation and Subsidiaries. (2014). 2013 Annual Report SEC Form 17-A. Mandaluyong: RFM
Corporation.

RFM Corporation and Subsidiaries. (2015). 2014 Annual Report SEC Form 17-A. Mandaluyong: RFM
Corporation.

RFM Corporation and Subsidiaries. (2016). 2015 Annual Report SEC Form 17-A. Mandaluyong: RFM
Corporation.

RFM Corporation and Subsidiaries. (2017). 2016 Annual Report SEC Form 17-A. Mandaluyong: RFM
Corporation.

RFM - [PDF Document]. (n.d.). Retrieved from

https://documentslide.com/documents/rfm563db943550346aa9a9b9da5.html
Subido, L. K. (2017). RFM Cooks Up More Affordable Spaghetti to Sustain Growth. Retrieved from
https://www.entrepreneur.com.ph/news-and-events/rfm-cooks-up-more-affordable-spaghetti -
to-sustain-growth-a00200-20170505

Stocks - RFM. (n.d.). Retrieved from

https://www.bloomberg.com/research/stocks/private/person.asp?personId=511792

The Wall Street Journal. (2017). Quotes: RFM. Retrieved from quotes.wsj.com:
http://quotes.wsj.com/PH/RFM/financials