BLACK, Danielle Alison B.

2015-14229
BA 115 Homework

COMPANY: EMPERADOR INC.

Macroeconomic Analysis
Sustained GDP growth in the Philippines in the past couple of years has been
accompanied with an increase in household final expenditure. Of these household final
expenditures, the percentage of expenditures on alcoholic beverages and tobacco has grown as
well. This indicates that there is potential for growth in the alcoholic beverages industry (See
Table). However, the alcoholic beverages industry looks at growth through the increasing middle
class and growing cocktail culture, which competitor GSMI took advantage of through activation
campaigns offering different cocktails using their products (“PH alcoholic,” 2016).
Macroeconomic events greatly favored one of EMP’s initial international acquisitions,
WMG. Whisky is Scotland’s third biggest industry, which accounts for 80% of its food and
industry sector (Emperador, Inc., 2017, p. 7). This led to EMP’s growth into a global empire in
the alcoholic industry (Montealegre, 2017)
Industry Analysis
EMP’s wide range of products at different alcohol levels has helped it maintain a positive
net margin in spite of the impact of the sin tax law implementation in 2013. According to
Euromonitor International (2017), the firm performed better than competitors with the
introduction of Emperador Light which is taxed less due to its low alcohol content. Moreover, the
industry recovered as a whole due to the growing domestic economy (Euromonitor International,
2017).
The same report also states that brandy, EMP’s main product, enjoys the largest volume
sales in 2016. However, it is GSMI’s main product- gin- that showed the highest actual sales
growth (Euromonitor International, 2017). This shows that a change in consumer taste
preference may serve as an opportunity or a threat to players in the spirits industry.
Company Movement
EMP was the first Philippine company to enter into the brandy business in 1990, when
alcoholic beverages sold back then were mainly gin and rum (“Emperador to be distributed”,
2016). In 2016, EMP penetrated the US market and started distributing its products in the
Americas and parts of Europe, following its purchase and acquisition of the 286-year old brandy
company Bodegas Fundador in Spain (“Emperador takes over,” 2016). Because of these two
big purchases, the company became the biggest brandy firm in the world (Gonzales, 2016) and
reported a 14.13% increase in net income from 2014 to 2015 and a 7.57% increase from 2015
to 2016.
Growth Prospects
EMP’s international acquisitions have broadened its market, and these have resulted to a
higher growth ceiling.
Through its acquisition of WMG, EMP entered into the whisky business. While currently
the domestic whisky sector is relatively small compared to brandy, gin, and rum, it has
registered the fastest growth among the types of alcoholic beverages in 2016, and it is also
projected to sustain this growth in the next years (Euromonitor International, 2017). This gives
EMP the first-mover advantage in this sector as it allows EMP to capture the taste preference of

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 Filipinos.
Domestic growth can also come from an expansion of the firm’s distribution network.
Currently, the firm’s sales offices are concentrated in the Luzon region (See Table).
Financial Statement Analysis
Financial ratios are compared for the years 2014 to 2016 to assess EMP’s liquidity,
operating efficiency, solvency, coverage, profitability and valuation. Ginebra San Miguel, Inc.
(GSMI), one of its main competitors, is used as a benchmark in the absence of reliable industry
figures. Tanduay Distillers, Inc. (TDI), EMP’s other main competitor, is not used as a benchmark
because its financial statements are lumped in with other diversified subsidiaries of LT Group,
Inc. (LTG).

Liquidity:
The overall liquidity of the Company appears to have improved in 2016 with increases in
its current, quick, and cash ratios from the previous year. The firm’s liquidity also greatly
exceeded that of GSMI. This increase in liquidity was not driven by increases in cash, but rather,
decreases in its current liabilities.

Solvency:
The firm’s level of interest-bearing debt is significantly higher than that of GSMI.
However, EMP’s overall indebtedness has steadily decreased over the 2014-2016 period and
currently remains below that of GSMI. Consequently, the firm’s financial leverage ratio is
relatively low. This indicates that the firm has the leeway to increase leverage in order to grow
earnings.

Coverage:
The times interest earned ratio of the firm has drastically decreased from 2014 which
coincides with the beginning of the firm’s string of acquisitions. Even so, the firm’s earnings
interest coverage is still higher than that of GSMI. In addition, the firm’s cash flow debt coverage
is still more than sufficient to cover its fixed payment obligations. However, it has also
decreased significantly and this may be another symptom of EMP’s problem with its cash
collection.

Profitability:
The firm’s increase in net income can be attributed to its continuous penetration of the
global market. Out of the three biggest spirits companies in the Philippines, EMP reported
significantly high numbers for their net margin at 17.61% in 2016, compared to GSMI’s 1.95%.
EMP also reported a slight increase after a decline in its return on equity, which may indicate
that the firm is slowly becoming capable of generating the same amount of money or profits as
before with increasing investment from its shareholders.

Valuation:
EMP recorded increasing dividends per share along with increasing amount of dividends
paid. This steady increase signals that the firm is currently financially stable.

2016 2015 2014

OPERATING EFFICIENCY RATIOS
Inventory Turnover 1.38x 1.88x 2.15x
Accounts Receivable Turnover 3.72x 4.26x 5.46x
Accounts Payable Turnover 4.62x 5.17x 5.76x

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 Average Days to Sell Inventory 266.47 194.32 169.39
Average Collection Period in Days 98.16 85.76 66.88
Average Payment Period in Days 79.04 70.56 63.37
Operating Cycle 362.63 280.08 236.27
Cash Conversion Cycle 283.59 209.52 172.90
Fixed Asset Turnover 1.03x 1.41x 1.88x
Total Asset Turnover 0.42x 0.44x 0.47x
LIQUIDITY RATIOS
Current Ratio 3.55x 1.50x 1.49x
Quick Ratio 1.76x 1.08x 1.13x
Cash Ratio 0.85x 0.74x 0.82x
Times Interest Earned 12.43 16.54 79.10
SOLVENCY RATIOS
Interest-bearing Debt vs Asset Ratio (D/A Ratio v2) 25.56% 24.32% 23.93%

Debt vs Asset Ratio (D/A Ratio v1) 44.62% 49.03% 53.89%

Financial Leverage 1.81x 1.96x 2.17x
COVERAGE RATIOS
OCF Interest Paid Coverage 2.76x 21.72x (no interest
paid)
OCF vs Total Interest Bearing Debt Coverage 0.03x 0.11x 0.33
PROFITABILITY RATIOS
Effective Tax Rate 19.65% 18.45% 25.2%
Gross Profit Margin 37.14%
Net Profit Margin 17.61% 15.21% 17.97%
Return on Equity 13.36% 13.06% 18.09%
Return on Assets 7.55% 6.7% 5.68%
VALUATION RATIOS
Dividends Per Share 0.1688 0.1500 0.1489
Dividend Yield 2.41% 1.68% 1.43%
Dividend Payout 35.17% 34.88% 36.31%
Price to Earnings 14.58% 20.81% 25.32%

2016 2015 2014

OPERATING EFFICIENCY RATIOS
Accounts Receivable Turnover 9.69x 6.5x 4.84x
Accounts Payable Turnover 9.35x 7.19x 6.38x
Average Collection Period in Days 37.66 56.14 75.42
Average Payment Period in Days 79.04 70.56 63.37
Total Asset Turnover 1.21x 0.98x 0.79x
LIQUIDITY RATIOS
Current Ratio 0.76x 0.72x 0.72x

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 Quick Ratio 0.32x 0.30x 0.35x
Cash Ratio 0.08x 0.04x 0.05x
Times Interest Earned 2.29x 1.26x 0.66x
SOLVENCY RATIOS
Interest-bearing Debt vs Asset Ratio (D/A Ratio v2) 1.51% 2.19% 2.53%
Debt vs Asset Ratio (D/A Ratio v1) 70.78% 73.75% 74.27%
COVERAGE RATIOS
OCF Interest Paid Coverage 5.02x 4.61x 4.49x
OCF vs Total Interest Bearing Debt Coverage 7.14x 5.16x 4.44x

Bibliography
ABOUT US. (n.d.). Retrieved November 26, 2017, from http://www.emperadorbrandy.com/about
-us.html
ABS-CBN News. (2016). Emperador takes over 286-year old Bodegas Fundador. Retrieved from
http://news.abs-cbn.com/business/03/02/16/emperador-takes-over-286-year-old-bodegas- fundador
ABS-CBN News. (2016). Emperador to be distributed in US this year. Retrieved from http://news.abs-
cbn.com/business/05/17/16/emperador-to-be-distributed-in-us-this-year
Cabuag, V. G. (2016). Alcohol sector drinks in impact of “sin” tax law. Retrieved from
https://businessmirror.com.ph/alcohol-sector-drinks-in-impact-of-sin-tax-law/
Emperador, Inc. (2016). Annual Corporate Governance Report 2016. Retrieved from
http://www.emperadorbrandy.com/images/investor/EMP%20-%20ACGR%202016.pdf
Emperador, Inc. (2017). Annual Report 2016. Retrieved from
http://www.emperadorbrandy.com/images/investor/Emperador%20Inc.%20Annual%20Report%2
02016.pdf
Euromonitor International. (2017). Spirits in the Philippines. Retrieved from
http://www.euromonitor.com/ spirits-in-the-philippines/report

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