CONFIDENTIAL

NO DEALINGS WITH SUBSIDIARIES/AFFILIATES

EVALUATION AND RECOMMENDATION FOR CREDIT

ACCOMMODATION
948 – CBD-Makati III ERCA REF NO. NEW EXPIRY 1Y from month-end of
376353 DATE: Approval Date
BRANCH/OFFICE
CREDIT APPLICATION TYPE: NEXT REVIEW 1Y from month-end of
Philippines 05. Renewal DATE: 2023-05-31
Approval Date
COUNTRY OF RISK ORIGINAL
AMLA Risk Rating: Normal EXPIRY DATE: 2023-07-28
Risk Code: B
DATE PREPARED: 2023-07-14

BORROWER'S NAME: GROUP NAME: NATASHA GROUP

Natasha Sales & Marketing Corporation
BORROWER SINCE: DEPOSITOR SINCE: YEARS IN BUSINESS:
SBJ Marikina Shoe Exchange Corporation (For Deletion)
2019 2010 31
ADDRESS: AGRI/AGRA: FIRM SIZE:
1610 Amang Rodriguez Ave. Brgy Dela Paz, Pasig, NCR N/A 05_Large-Scale Industries (Assets range from 100,000,001
and above)
NATURE OF N_046414 Wholesale of articles of ECONOMIC ACTIVITY E_000700 Wholesale and Retail Trade; Repair of Motor
BUSINESS: clothing, including CODE: Vehicles, Motorcycles and Personal and
accessories Household Goods Services
PRINCIPAL OFFICERS: DOSRI TYPE: NO N.A. RPT: NO

Based on 2023 GIS: PREVIOUS CURRENT PROPOSED

APPROVED
Victoria B. Villa - President / Director RISK RATING 4 5 LCRRS:
ICRRS 65
Ma. Dinah Dawn J. Bitong - Vice President / Director
Majar B. Jardiolin - Chairman
Sebastian B. Jardiolin - Treasurer / Director ACCOUNT Closely Monitor Closely Monitor
Maintain Closely Monitor
Josephine M. Billones - Treasury Manager / Director STRATEGY
Mary Anne C. Cuartero - Corporate Secretary ADVERSE 1. Unclassified - Pass Watchlist
CLASSIFICATION
LOAN PURPOSE:
Renewal of the ff. credit facilities under Natasha Sales & Marketing Corporation (NSMC):
1. Omnibus Line at a reduced amount of P50MM from P100MM
- Available as Working Capital Line and LCTR Line with no sub-limit
- For Deletion: Availability to SBJ Marikina Shoe Exchange Corporation (SBJ) up to P50MM– SBJ will be absorbed by NSMC via merger which is set to be
completed by 2024.
- Line Purpose: For purchase of inventory (apparel, personal care products, etc.) from local suppliers (90%, paid within 60 days) and foreign suppliers (10
%; payment via t/t of 35% dp and 65% bal upon shipment; via LC for Unilever)
2. Domestic Bills Purchase Line at a reduced amount of P50MM from P100MM for liquidity purposes.
3. P5MM Pre-settlement Risk Line for hedging of FX for inventory importation.
Total
Total exposure:
exposure:P155MM
P155MM(from(from P205MM)
P205MM) vs.vs.
existing CSCS
existing of of
Majar B. B.
Majar Jardiolin andand
Jardiolin Sebastian B. B.
Sebastian Jardiolin forfor
Jardiolin P100MM. The
P100MM. sureties’
The suretiesnet
areworth
knownis for its
estimated
substantialatplacements
P1.0Bn based
heldon placements
with held with
Trust Banking Trust Banking Group.
Group.

I. PROPOSAL (S)
ITEM NO. FACILITY TYPE BORROWER NAME EXISTING O/S BALANCE PROPOSED
(000) (000) (000)
1 NATASHA SA 270308 OML PHP 100,000 0 PHP 50,000
270553
DESCRIPTION : Omnibus Line
- Available as WCL and LCTRL with no sub-limit
- For Deletion: Availability to SBJ Marikina Shoe Exchange Corp. at P50MM sub-
limit
TERMS :

1.1 NATASHA SA 270308 WCL (100,000) (0) (50,000)

270554
DESCRIPTION : Working Capital Line
TERMS : .
• NEW CONDITION: Submission of AFS 2022 prior to loan release. November 29, 2023 CRECOM/
• Available via 30-90 days PN;
• Interest rate at prevailing 1mo./3mo. FTP + min of 1.00% spread grossed up for 5
CREDIT
% GRT. - OML drawdowns subject to submission of
• Interest reviewable/repriceable monthly/quarterly and payable monthly in arrears.
• Any interest deviation shall be subject to existing Combank approving guidelines
AFS 2022, and prior clearance from Crecom
(Vol. 2, Pol. 2010, 2017).
(via OS).
- Provide account update to Crecom in 6 months,
preferably w/ 2023 AFS.

Natasha Sales & Marketing (50,000) (0) (50,000)

Corporation

Loan outstanding could not be validated against debt 5/PWL Closely Monitor
reported in the borrowers' AFS due to lack of details.
> Renewal and reduction of OL as company continues to report impaired capital (negative equity), operating losses, negative EBITDA and net losses. Also, No 20222 AFS,
only a tentative FS was submitted. Despite the mentioned financial concerns, CBD would like to continue w/ the line renewal owing to our deposit relationship w/ client
and CS w/c have placements w/ our Trust banking. This is validated by the AFS w/c reflected high level of reserved cash amtg P500MM+. Also, SBC continues to
support the company w/ the renewal of its P200MM OL w/ OS of P130MM under Domestic LC.
Recommendation
For consideration. Renew for 1 year, but required account review upon availability of 2022 AFS. Recommended RR of 5PWL. Closely monitor deposits and placements w/ us.

AUChua 11/28/2023
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 2 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

I. PROPOSAL (S)
ITEM NO. FACILITY TYPE BORROWER NAME EXISTING O/S BALANCE PROPOSED
(000) (000) (000)

SBJ Marikina Shoe Exchange (50,000) (0) (0)

Corporation
1.2 NATASHA SA 270308 LC/TR (100,000) (0) (50,000)
270555
DESCRIPTION : LC/TR Line
TERMS : • For Domestic/Foreign Sight/Usance/Cash LC/Non-LC (DP/DA/ OA/
AP);
• Commission of 1/8 of 1% for the first two months and 1/8 of 1% per month
thereafter;
• Interest at prevailing 1mo./3mo. FTP + min of 1.00% spread grossed up for 5%
GRT. Interest to be repriced monthly/quarterly and payable monthly in arrears.
• Full payment at maturity.
• Allow acceptance of fire/marine insurance policy issued by 3rd party insurance
company other than AXA Phils., specifically, Seaboard-Eastern Insurance Company
Inc., provided duly endorsed in favor of Metrobank.
• Allow acceptance of 3rd party Fire Insurance Policy (FIP) issued by any of the top
10 non-life insurance companies based on assets and net worth.

Natasha Sales & Marketing (50,000) (0) (50,000)

Corporation
SBJ Marikina Shoe Exchange (50,000) (0) (0)
Corporation
2 NATASHA SA 270308 BP PHP 100,000 PHP 0 PHP 50,000
LOCAL 270556
DESCRIPTION : Domestic Bills Purchase Line
TERMS : .
• For outright purchase of local/regional customer's (corporate/individual) checks;
• Allow purchase of own checks provided checks are confirmed funded; charges
waived;
• For returned checks, interest to be collected from the date of purchase up to the
date of payment;
• Allow inter-branch BP/deposit and waive charges.
• Secured by the CS of Majar B. Jardiolin and Sebastian B. Jardiolin

Natasha Sales & Marketing (50,000) (0) (50,000)

Corporation
SBJ Marikina Shoe Exchange (50,000) (0) (0)
Corporation
3 NATASHA SA 270308 DERIV PHP 5,000 0 PHP 5,000
270557
DESCRIPTION : Pre-Settlement Risk Line
TERMS : .
• Via short-term contracts not exceeding 180 days;
• Exceeding of availment against the line shall be based on the outstanding face
value and its corresponding pre-settlement risk (PSR) factor depending on the tenor,
per bank policy.
• Waiver of CS of all stockholders and their children.
• Waiver of cross-corporate CS.

Natasha Sales & Marketing (5,000) (0) (5,000)

Corporation
SBJ Marikina Shoe Exchange (5,000) (0) (0)
Corporation

II. EXISTING FACILITIES OF THIS BORROWER

ITEM NO. FACILITY TYPE BORROWER NAME EXISTING O/S BALANCE
(000) (000)
TOTAL THIS BORROWER PHP 205,000 PHP 0 PHP 105,000
III. EXISTING FACILITIES WITH MBTC OF RELATED ACCOUNTS
ITEM NO. FACILITY TYPE MATURITY/ DESCRIPTION EXISTING O/S BALANCE PROPOSED
EXPIRY DATE (000) (000) (000)
SUMMARY OF TOTALS
A. TOTAL RELATED ACCOUNTS PHP 0 PHP 0
B. TOTAL BORROWER AND RELATED ACCOUNTS (I, II & III) PHP 205,000 PHP 0
C. TOTAL SUBSIDIARIES/AFFILIATES PHP 0 PHP 0
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 3 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

III. EXISTING FACILITIES WITH MBTC OF RELATED ACCOUNTS

ITEM NO. FACILITY TYPE MATURITY/ DESCRIPTION EXISTING O/S BALANCE PROPOSED
EXPIRY DATE (000) (000) (000)
D. GRAND TOTAL - MBTC GROUP (B + C) PHP 205,000 PHP 0
E. TOTAL RISK (includes new/additional proposals for related accounts) PHP 105,000

ACTION OF APPROVING AUTHORITY APPROVAL CONDITIONS

COMMITTEE MEMBER COMMENTS

NAME COMMENTS DATE
IV. PURPOSE AND SOURCE OF REPAYMENT
DETAILS OF FINANCING REQUIREMENTS / WORKING CAPITAL COMPUTATION
Natasha Sales & Marketing Corporation (NSMC), incorporated in 2015, is the flagship business of Natasha Group. It is a retailer of fashion items and
personal care products carrying the brand Natasha (introduced in the market in 1989) and other partner FMCG brands such as Unilever, P&G, and Unilab.
NSMC sells its products through its 520,000 resellers nationwide (direct selling - 65% of revenues) and via direct distribution to wholesalers/retailers (35%).
I. Proposal
Renewal of the ff. credit facilities under Natasha Sales & Marketing Corporation (NSMC):
1.Omnibus Line at a reduced amount of P50MM from P100MM
- Available as Working Capital Line and LCTR Line with no sub-limit
- For Deletion: Availability to SBJ Marikina Shoe Exchange Corporation (SBJ) up to P50MM– SBJ will be absorbed by NSMC via merger which is set to be
completed by 2024.
- Line Purpose: For purchase of inventory (apparel, personal care products, gen merch, etc.) from local suppliers (90%) which are paid within 60 days and
-
from foreign suppliers based in China which are paid via telegraphic transfer at terms of 35% down payment and 65% balance payable before shipment.
- Estimate WCR for 2023 and 2024: P568.25MM
2. Domestic Bills Purchase Lline at a reduced amount of P50MM from P100MM for outright purchase of local checks for liquidity purposes.
- Average monthly collections: P25MM in 2022, P21MM in 2023.
- P5MM Pre-settlement Risk Line for hedging of FX for inventory importation. This is being renewed on stand-by basis.
3.

II. Security
No change in security. On hand: CS of Majar B. Jardiolin and Sebastian B. Jardiolin for P100MM. The sureties are known for its substantial placements held
with
- Trust Banking Group. No other disclosed properties and investments; with approved waiver of SALN requirement.
III. Validation
1. FS is audited by reliable auditor Isla Lipana & Co.
2. Total credits coursed through us accounted for the ff. % of sales:

3.
- COGS attributed to imported products (10%) amounting to P117.48MM in 2022 is 99.75% validated by import volume captured by the Bureau of Import
Services, as follows:

- - Currently no FX purchases from us, but

client buys USD in bulk to mitigate FX risk.
Hedging policies (PSRL) are also in place.
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 4 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

4. COGS attributed to local purchases (90%) amounting to P1.06Bn - Disclosed top suppliers accounted for at least half a billion in purchases. However,
-validation remains limited as client is not amenable to providing their contact person for direct checking. Disbursements captured by MBTC amounted to
P112.86MM in 2022 and P67.56MM as of Aug 2023 (P101.34MM annualized).
Local suppliers extend payment term of up to 60 days and are paid via fund transfers while foreign suppliers (10% of inventory) are paid 35% down payment
and full payment upon shipment, via t/t and LC (for Unilever).
-
IV. CIR Results
1. Latest CIR dated of 10/03/2023 showed the ff. credit facilities which are all against CS of owners:
- SBC: P250MM OL, USD 2MM PSRL, USD 400K SRL, P10MM DBPL
- MBTC (not in CIR): P100MM OL, P100MM DBPL, P5MM PSRL
-- Total Limit in PHP: P599.40MM (PHP 56: USD 1)
- Total Revolving Lines (OL): P250MM

2. Quarterly CIRs from 12/29/2021 to 10/03/2023 shows that the client had nil credit line usage aside from the P130MM contingent balance under Security
Bank's Dom STLC (under OL).
-
SOURCES OF REPAYMENT / CASH FLOW SOURCES
1. Primary: Operating cash flows from the sale of personal care products and general merchandise.
- Nil bank debts but with concerns on negative EBITDA of P206.36MM in 2022 (FY21: -P63.13MM) in view of slim margins. This is mitigated by the ff:
a. Substantial cash reserves of P527.39MM as of end-2022
b. Sufficient net trading assets of P146.93MM (P134.11MM AR + P473.58MM Inv - P460.76MM AP - nil ST debt) based on latest available AFS 2021.
2. Secondary
- Funding support from SBC where NSMC has P250MM of available credit limit under OL
- The sureties
CS of ownersare known
with Trustfor its substantial
placements placements
amounting held with Trust Banking Group.
to P1.00Bn
CHANGES IN TERMS AND CONDITIONS FROM PRIOR APPROVAL
- Reduction of Omnibus Line to P50MM (from P100MM) and Domestic Bills Purchase Line to P50MM (from P100MM)
- Deletion of SBJ Marikina Shoe Exchange Corp. as co-user of credit facilities.

POLICY DEVIATIONS FOR APPROVAL (please indicate if new or previously approved)

PREVIOUSLY APPROVED:
- Defer warehouse visit until 05/31/2023 (Vol. 2, Pol. 1114)
- Allow acceptance of fire/marine insurance policy issued by 3rd party insurance company other than AXA Phils., specifically, Seaboard-Eastern Insurance
Company Inc., provided duly endorsed in favor of Metrobank.
- Allow acceptance of 3rd party Fire Insurance Policy (FIP) issued by any of the top 10 non-life insurance companies based on assets and net worth.
- Allow acceptance of e-copies of insurance policies.
- Allow deferment in submission of insurance policies and ORs for 30D provided that client can submit Certificate of Insurance Coverage.
- Any interest deviation will be subject to existing ComBank approving guidelines.
- Allow waiver of CS requirement for spouses, children of legal age and their spouse, intercompany suretyship/cross guarantee (no other CS required aside
from CS of Majar B. Jardiolin and Sebastian B. Jardiolin), ITR and SALN of individual sureties, CLI of individual sureties (Vol. 2 1311, 1/26/2015 / Vol. 2
POL. 1401).
- Allow waiver of marital consent.
JUSTIFICATION FOR POLICY DEVIATIONS
- The above waivers are warranted by the client's good collateral business. As of June 30, 2023, Group CASA ADB stands at P61.06MM. The owners are
Thelong
also sureties
timeare known
clients for itsBanking
of Trust substantial
Groupplacements held withamounting
with placements Trust Banking Group.
to P1.0Bn.

DOCUMENTATION DEVIATIONS FOR APPROVAL

None

JUSTIFICATION FOR DOCUMENTATION DEVIATIONS

N/A

OUTSTANDING DOCUMENTARY DEFICIENCIES

No outstanding documentary deficiencies.

RM RECOMMENDATION
Recommending
- the renewal of credit facilities totaling to P50MM OML, P50MM BP and P5M Pre-Settlement Risk Line with proposed risk rating and
strategy of PWL/5C based on the following merits:
1. Positive Outlook for 2024 - The company expects to recover pre-pandemic topline gradually at P2.00Bn in 2019, to be driven by:
- Strengthened digital visibility (mobile app and website, Facebook advertisements, live selling) (Mobile App & website, Facebook advertisement, live selling)
- Expanded distribution network through additional branches that were opened in 2022 (Dipolog and Dumaguete Branch)
-- Increased direct active selling agents from 500,000 in 2022 to 520,000 in 2023 located in various areas of the country
- Supported by a fleet of 400 vans for distribution
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 5 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

2. Competent management & succession in place.

Ms. Victoria Villa launched her direct selling company in 1989 and has continued to actively oversee the business. Her three children, Majar B. Jardiolin, Ma.,
Sebastian
- B. Jardiolin, and Dinah Dawn J. Bitong, are already running the company and have contributed to expanding it as well. Additionally, these
individuals were raised around their family business and studied every aspect of it. As such, the leadership of Ms. Villa has been passed on to her children,
which guarantees general stability.

- The company's brands including Natasha and MSE are already established.
3.
The brands that the business carries are familiar to the market. Natasha products has been one of the pioneers in the market since 1994. On
the other side, Marikina Shoe Exchange (MSE) was established in 1999.

4. Satisfactory credit dealings with NSMC.

- company's credit dealings with SBC and MBTC were satisfactory based on the Loandex report dated October 3, 2023. The group is a fund provider.
The
NSMC has been a depositor of MBTC since 2010 and, together with other related companies owned by the Jardiolin family, has shown a significant deposit as
follows:
- YTD Aug 2023: P95.55MM (annualized at P143.32MM)
- 2022: P127.54MM (-4.51% vs. 2021)
-
- 2021: P133.56MM (+6.27%)
- 2020: P125.68MM

5. Credit facilities are on standby basis. Client will be required to submit AFS 2022 before line drawdowns are allowed.
Since
- lines were established in 2019 , client did not avail of credit facilities. Revenue and operations is in recovery stage. Based on its tentative audited FS,
client reflected losses, however, client clarified that its operations remain profitable.

CRG RECOMMENDATION
We highlight the ff. risks:
1.Risk to continue as a Going Concern: NSMC’s auditor Isla Lipana & Co. cited material uncertainty related to going concern on account of the Company’s
retained earnings deficit and apparent liquidity risk given its larger current liabilities vis-a-vis current assets. Our account review substantiates this risk with
the concerns listed below:
-a. Continuous Revenue Contraction - Highest topline growth was reported in 2019 (sales of P2.05Bn, +103%) attributed to consolidation of six Natasha
Fashion Club companies under NSMC. Sustained downward trend in sales since the pandemic (FY20: -21%, FY21: -9%, FY22: -8%) with management
forecasting FY23 topline to further decline by 15% to P1.38Bn. Revenue generation is challenged by the intense competition in the apparel and general
merchandise market.
-Mitigant: While reseller's direct selling activities continue to be the main revenue driver (65%), NSMC has already started to distributes its products to
various wholesalers and retailers nationwide. Product distribution now accounts for 35% of sales. Core marketing operation is also being shifted from person-
to-person marketing to online. Geographic concentration is a;sp being shifted away from NCR to provinces in Luzon and Vismin where competition is less
intense.
-b. Weak Operating Performance - Consecutive operating losses since 2020 with tentative FS 2022 showing operating loss of P206.36MM (FY21: op loss
of P156.35MM) on account of slim gross margins given NSMC's competitive price point (GPM - FY22: 27.69%, Four-year average: 31.78%) and
substantial opex (P519.07MM) which takes up ~47% of sales. The largest opex component is Salaries & Wages which is estimated to account for 85% of the
total (excl. depreciation).
Mitigant: To streamline manpower, NSMC started to offer early retirement packages to its employees starting 2020. Of note, retirement benefits paid by the
-
company (lodged under opex) amounted to P6.32MM in 2021 and P75.77MM in 2020. This is an on-going effort and the resulting reduction in salaries &
wages expense is expected to be seen in 2024. From 1,500 employees in 2019, manpower is now down to 400 as of 09/01/2023.

c. Perceived Weak AR Quality - This is in view of y-o-y additional provisions on Doubtful Accounts (from the initial amount of P1.09MM in 2018, FY19:
-+P16MM, FY20: +P43MM, FY21: +33MM, FY22 tentative: +P14MM). Based on latest available AFS FY21, the Allowance for Doubtful Accounts stood
at P48.96MM or 26.75% of Gross AR (P183.07MM). AR write-offs (net of recoveries) amounted to P40.44MM and P2.62MM in 2020 and 2021,
respectively.
Mitigant: Resellers' purchases are via post-dated checks or TR agreements. NSMC also has an in-house legal team that handles past due accounts.

-d. Perceived Low Marketability of Inventory - Initial allowance for Inventory Obsolescence was at P13.80MM in 2019. Incremental provisions were
FY20: +P16MM, FY21: +P30MM while inventory write-offs were at P12MM in 2020 and P19MM in 2021. Based on latest available AFS FY21, the
Allowance for Inventory Obsolescence stood at P28.25MM or 6.34% of total gross inventory (P445.33MM). Doubtful Accounts stood at P48.96MM or
26.75% of Gross AR (P183.07MM).
Mitigant: To boost sales of slow-moving items, NSMC implements product bundling and special volume discounts.
-
e. Capital Deficiency - Following consecutive net losses since the pandemic, equity for FY22 (based on tentative FS) further slumped to -P272.48MM
(from FY21: -P77.54MM).
Mitigant: On top of streamlining of operations to cut costs, principals continue to support the business via fresh equity infusion evidenced by their
P49.38MM common stock investment in 2021. With current stockholding at P132.50MM, owners still have room to infuse equity up to NSMC's authorized
-paid up capital of P500MM.

As of the moment, we have no o/s loans to the Company. We support IBS' request to renew NSMC's credit facilities with RR of 5/PWL (one notch higher
than the LCRRS rating of 6 on account of prudent debt handling), on stand-by basis, to protect our deposit and cash management business, as follows:
-
- The sureties are known for its substantial placements held with Trust Banking Group.
- Group CASA ADB:
- YTD Aug 2023: P94.22MM (annualized 2023 +10.81% vs. 2022)
- 2022: P127.54MM (-4.51% vs. 2021)
- 2021: P133.56MM (+6.27%)
- 2020: P125.68MM
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 6 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL
- Present Balance as of Aug 2023: P95.54MM (annualized: P143.32MM)
- Cash management products: Required maintaining balance is P5MM for NSMC and P5MM for SBJ.
-
>Our prudence dictates to consider securing future availments by hold-out on deposits maintained with us.

Additional merits to the account:

1. Significant Cash Position - Substantial cash reserves of P527.39MM as of end-2022. NCAO of 139.29MM in 2021 (latest available AFS).
- Sufficient Trading Assets to Cover Trading Liabilities - Net trading assets of P146.93MM based on latest available AFS.
2.
3. Long standing banking relationship as a client of Private Banking and Trust - Depositor since 2002 (21 years) and active user of cash management
products as detailed above.
4. Continuing Bullish Stance of Other Creditors - NSMC continues to enjoy unsecured credit facilities with SBC totaling P394.40MM (P250MM OL,
USD 2MM PSRL, USD 400K SRL, P10MM DBPL).
- recommend account review upon availability of the AFS 2022 and suggests the ff. triggers for updating of risk rating:
We
a. Upgrade to Pass (at least 3 of 6)
- OPM of at least 2%
- Net trading assets of at least P50MM.
- Total Equity equivalent to at least 10% of Total Assets
-
- Current ratio of at least 1.20x
- Debt-to-EBITDA of at most 3.00x
- Debt-to-Equity of at most 2.50x
b. Downgrade to LEM (at least 3 of 4)
--Missed contractual obligations (payments of interest, lease, trade-related transactions, etc.)
- Sudden change in borrowing behavior (request for excess availments or non-trade case-to-case accommodations, etc.)
-2Reduction in exposure of other creditors
- Persistent going Concern issue on the AFS

RECOMMENDING APPROVAL CREDIT GROUP COMMENTS OF SENIOR REVIEWERS

RM: Sumat, Marycone
Benito, AminodingOR. CRO: Clemente, Cecilia E
Division De Leon, Mikee R. CSU Head: Bulatao, Ralph Paul R.
Head:
Center Head: Tan, John Paul V. Division
Head:
MM/CS Head: Mapa, Juan Placido T. III Group Head: Bilongilot, Charlotte T.
Group Head: Reyes, Christopher L.

V. SUMMARY OF SECURITY / SUPPORT

ITEM MITIGANT TYPE FACILITY TYPE REGISTERED OWNER APPRAISED/ LOAN REGISTERED
NO. MARKET VALUE AMOUNT
VALUE
A. ON HAND / EXISTING LOT
TOTAL
B. TO BE OBTAINED
TOTAL
ITEM MITIGANT TYPE SURETY NAME AMOUNT
NO
C. CONTINUING SURETYSHIP ON HAND / EXISTING
1 CS CS PH 270565 Jardiolin Majar|Jardiolin Sebastian PHP 100,000,000
DESCRIPTION : Continuing Surety Agreement to be executed by Majar B. Jardiolin and Sebastian B. Jardiolin for P100MM in favor of Natasha Sales and
Marketing Corp. (57 y.o.) (60 y.o.)
CS/GUARANTOR EVALUATION: The sureties
Sureties haveare known for
substantial its substantial
amount of assetsplacements
with Trust held withGroup
Banking Trust Banking
estimatedGroup.
at P1Bn.
2 CS CS PH 287001 Jardiolin Majar|Jardiolin Sebastian PHP 100,000,000
DESCRIPTION : FOR DELETION: Continuing Surety Agreement to be executed by Majar B. Jardiolin and Sebastian B. Jardiolin for P100MM in favor of SBJ
Marikina Shoe Exchange Corporation.
CS/GUARANTOR EVALUATION: For Deletion: Sureties have substantial amount of assets with Trust Banking Group estimated at 1Bn.
D. CONTINUING SURETYSHIP TO BE OBTAINED
VI. BANK CHECKING IN PHP '000
Current Bank Checking as of 2023-10-03
BANK LINE LINE AMOUNT OUTSTANDING SECURITY EXP REMARKS
SBC OL 250,000 Contingent - 130,000 JSS 1
DL - PSRL 110,000 0 JSS
DL-SRL 22,000 0 JSS
DBPL 10,000 - JSS
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 7 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

Short Term 250,000 130,000

TOTALS
Term
Notes:
1. The P130MM
P115MM cont. balance under SBC's OL reflects the issuance of a domestic LC.
BANK CHECKING - 2. The Pre-Settlement Risk Line and Settlement Risk Lines are both denominated in USD. These are
OTHER RELEVANT converted to PHP using Php55/USD.
3. MBTC lines of NSMC were implemented although they were not reflected in the CIR. Per checking, only
INFORMATION the lines of SBJ (co-borrower) were not issued DIO status due to the mismatch of the Company's BOD
members on its Art. of Incorporation vs. GIS. This is still pending clarification.
Previous Bank Checking as of 2022-03-08
BANK LINE LINE AMOUNT OUTSTANDING SECURITY EXP REMARKS
SBC OL 250,000 0 JSS SAT
DL - PSRL 110,000 0 JSS
DL-SRL 22,000 0 JSS
DBPL 10,000 - JSS

Short Term 250,000 0

TOTALS
Term
VII. ACCOUNT PROFITABILITY - BORROWER
IN PHP OR ITS EQUIVALENT
LEAD BANK SBC
MBTC RANKING 2nd
ACCOUNT STRATEGY Credit
- Strategy:
- Grow CASA ADB to P25MM by end-2023 from P22MM in December 2022.
- Request CIR quarterly to monitor bank borrowings
- Monitor deposit level
-- Conduct teleconference meetings at least once a year to get updates on operations, given that
client calls may not be permissible or safe in the next year.

Collection Strategy:
- Products are being sold locally.
-- Payments of customers are via PDC for long term dealers and cash for new customers
- Natasha deals with 520,000 active selling agents
- The client is enrolled with different collection solution with us such as BPCA (OTC and e-
channel), DPU and PDC warehousing.
-
Disbursement Strategy:
- 85% of the products are sourced locally
- Credit terms given by Suppliers is 60 days via Fund Transfer
- Client is already migrated to MBOS and uses Account Sweep facility and Auto credit for its
disbursements
- to suppliers.
- Capture FX requirement for their importation of goods.
- They also has payroll with us.
- Maintain status as one of their main disbursement bank.

Support
- Needed & Other Mktg. Strategies
- Renew line to capture any funding requirement in 2023.
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 8 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

- And to maintain good relationship with the client, as they have substantial placements with
Trust Banking and FMIC.
- Maintain status as one of the main bank for their collection and disbursements.
-
COVERED PERIOD PRIOR REVIEW PERIOD UNDER REVIEW COMMITMENT NEXT
PERIOD
Jan-Dec 2021 Jan - Dec 2022 2023

TOTAL REVENUES 212,694 450,475 523,000

% ATTAINMENT OF COMMITMENT
FUNDS BASED REVENUE 468,062 503,000
NON-FUNDS BASED REVENUE -255,368 -308,025
RORA 0.00 0.00
ROFE -0.98 -1.60
RAROC
EXPECTED LOSS
ECONOMIC PROFIT

WALLET SHARE - CORPORATE FINANCE

LOAN ADB 0 0 10,000,000
CORPORATE NOTES/ BONDS/ EQUITY ISSUED
FINANCIAL LEASES

WALLET SHARE - CASH MANAGEMENT

LOW COST DEPOSIT ADB 24,374,395 31,612,221 25,000,000
HIGH COST DEPOSIT ADB 0 0 0
PLACEMENTS
TOTAL DEPOSIT CREDITS NET OF ATA & LOAN 94,348,404 110,320,802
RELEASES
COLLECTIONS - TOTAL VALUE 94,348,404 110,302,802
DISBURSEMENT - TOTAL VALUE 82,327,907 112,856,921
OTHERS - TOTAL VALUE

Wallet Share - TRADE

SBLC/BG/CLCUs
IMPORT LCs
DOMESTIC LCs
TRUST RECEIPTS
EXPORT LCs
Outward TT 50,000,000
INWARD TT

Wallet Share - TREASURY

FX SALES 50,000,000
FX PURCHASE
DERIVATIVES

WALLET SHARE - IN PLANT BANKING

PAYROLL

RETIREMENT FUNDS
CONSUMER LOANS
CREDIT CARDS
INSURANCE COVERAGE

VIII. ACCOUNT PROFITABILITY - GROUP

ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 9 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

IN PHP OR ITS EQUIVALENT

LEAD BANK SBC
MBTC RANKING 2nd
ACCOUNT STRATEGY
COVERED PERIOD PRIOR REVIEW PERIOD UNDER REVIEW COMMITMENT NEXT
PERIOD
Jan - Dec 2021 Jan - Dec 2022 2023

TOTAL REVENUES 2,036,894 2,594,862 2,200,000

% ATTAINMENT OF COMMITMENT
FUNDS BASED REVENUE 2,911,612 2,911,607
NON-FUNDS BASED REVENUE -874,717 -922,428
RORA 0.00 0.00
ROFE -1.48 -1.98
RAROC
EXPECTED LOSS
ECONOMIC PROFIT

WALLET SHARE - CORPORATE FINANCE

LOANS ADB 0 0 10,000,000
CORPORATE NOTES/BONDS/EQUITY ISSUED
FINANCIAL LEASES

WALLET SHARE - CASH MANAGEMENT

LOW COST DEPOSIT ADB 152,958,786 146,615,572 170,000,000
HIGH COST DEPOSIT ADB 0 0
PLACEMENTS
TOTAL DEPOSIT CREDITS NET OF ATA & LOAN 403,612,524 376,489,820
RELEASES
COLLECTIONS - TOTAL VALUE 403,612,524 376,489,820
DISBURSEMENTS - TOTAL VALUE 379,100,472 388,993,137
OTHERS - TOTAL VALUE

WALLET SHARE - TRADE

SBLC/BG/CLCUs
IMPORT LCs
DOMESTIC LCs
TRUST RECEIPTS
EXPORT LCs
OUTWARD TT
INWARD TT

WALLET SHARE - TREASURY

FX SALES
FX PURCHASE
DERIVATIVES

WALLET SHARE - IN PLANT BANKING

PAYROLL
RETIREMENT FUNDS
CONSUMER LOANS
CREDIT CARDS
INSURANCE COVERAGE
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 10 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

IX. BASIC INFORMATION / REMARKS

1. BRIEF BACKGROUND OF BORROWER / COUNTERPARTY
COMPANY HISTORY
START OF OPERATIONS 1989-01-01
LINE OF BUSINESS Natasha Sales & Marketing Corporation (NSMC) is a direct selling company carrying
fashion items (shoes & apparel), personal care products (cosmetics & supplements), and
various merchandise (household items). Products are sold to resellers (65%) who engage in
face-to-face marketing with end-users and to wholesaler/retail companies nationwide (35%).
BRIEF HISTORY The
- business started in 1989 initially as a retail shop in Robinsons Galleria under Shoecat
Inc. In 2005, the client shifted to direct selling which is a more personal retail approach done
by sales agents with products marketed via catalogues. Through this method, the Company's
in-house footwear brand, Natasha, gained market traction and the business expanded to other
fashion
- products including clothing, undergarments, and accessories. This paved the way to
the establishment of Natasha Fashion Club, which is comprised of six direct selling
companies namely, Venturo Inc. (est. Nov. 2000), Vivendi Corporation (Nov. 2000), Aveena
Inc. (Dec. 2003), Marketreach Corp. (Dec. 2003), Easystride Inc. (Sept. 2004), and the
4
flagship company, Natasha Sales & Marketing Corp. (Nov 2015).
BUSINESS PLANS AND TIMEFRAMES - At present, the Group has 520,000 active members/distributors who earn by buying
Natasha and other partner brands at a discount, and sells them to end-users. There are 25
Natasha branches nationwide that caters to the members' demand.

- To streamline operations and reduce cost, NSMC will be taking over the trading business
of its affiliate SBJ Marikina Shoe Exchange Inc. which carries the brand MSE. The merger,
with NSMC as the surviving entity, will be completed by 2024.
OTHER RELEVANT INFORMATION - Seeing the consumers' inclination to purchase products online, the Group also strengthened
its online presence by developing a mobile app (Natasha App) and revamping its social
media sites as well as e-commerce platform (Lazada).

- Natasha Group is also engaged in hotel and restaurant operations through Southwind
Palawan Hotel in Puerto Princesa, Palawan, which has been operating for over 3 years. The
client did not disclose further information about this venture.
OWNERSHIP
NAME OF KEY SHAREHOLDERS NSMC is wholly-owned by the Jardiolin family headed by Mrs. Victoria B. Villa (aged 81).
Ownership of the business was already passed on to Mrs. Villa's three children, as follows:

Majar B. Jardiolin - 33.33%

Ma. Dinah Dawn J. Bitong - 33.33%
Sebastian B. Jardiolin - 33.33%
Josephine M. Billones - 0.0005%
Victoria B. Villa - 0.0002%
Total - 100.00%

Source: GIS 2023

RELEVANT INFORMATION ON SHAREHOLDERS NSMC was incorporated by Mrs. Victoria Jardiolin who currently serves as the Company's
President. Mrs. Jardiolin, born on March 5, 1942 (aged 81), has a Business
Administration degree from the University of the Philippines (UP) and PHD from University
of Ancient Catholic Church - Federal Republic of Germany.

NSMC, a family business, is now being run by the children of Mrs. Jardiolin:
- Majar Jardiolin, born on July 3, 1966 (aged 57), legally separated, earned his degree in AB
Philosophy from UP.
He manages the overall operations of NSMC.
- Ma. Dinah Dawn J. Bitong, born on July 2, 1961 (aged 62), married, graduated BS Hotel &
Restaurant Administration from UP. She spearheads the marketing activities of the Company.
-Sebastian Jariodlin, born on April 24, 1963 (aged 58), married, has a degree in AB
Philosophy from UP. He also took his Masters in Management at Boston University, Vrijie
Universitit, Brussels Belgium. He manages the overall operations of SBJ, the Company to be
folded with NSMC.
FINANCIAL RESOURCES OF KEY OWNERS/ The
The Jardiolin
Jardiolin Family
Family isare
known forbanking
private its substantial
clients placements held with
with placements Trust Banking
amounting Group.
to P1.00Bn with
SHAREHOLDERS our Trust Banking Group.
OWNERSHIP RISKS AND MITIGANTS No major ownership risk noted as NSMC is already being managed by the children of
Ms. Villa. The identified successor is his son Majar who is the currently the Chairman of the
business.
KEY MANAGEMENT
PRINCIPAL OFFICERS Based on 2023 GIS:

Victoria B. Villa - President / Director

Ma. Dinah Dawn J. Bitong - Vice President / Director
Majar B. Jardiolin - Chairman
Sebastian B. Jardiolin - Treasurer / Director
Josephine M. Billones - Treasury Manager / Director
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 11 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

Mary Anne C. Cuartero - Corporate Secretary

BACKGROUND AND EXPERIENCE NSMC was founded by Victoria Villa, a self-made entrepreneur. She started in the footwear
industry by assisting her sister, Yolanda Bello Pajaro, in the production of the local upscale
brand Via Veneto and Confetti Shoes. Victoria directly deals with Marikina-based shoe
manufacturers and advises them on in-demand shoe designs to be produced. After her stint in
her sister's business, Victoria started her own shoe retail shop targeting the lower income
market segment.
.
When her physical store in Robinsons Galleria failed to achieve footprint, Victoria started to
sell on wholesale basis to dealers who then sell the products to end-users. This gave birth to
Natasha's direct selling operations. Natasha became a family-run business, with Victoria's
children actively developing their dealer network as well as providing inputs in selecting and
marketing the merchandise.
RELEVANT INFORMATION ON KEY Victoria B. Villa is a former director of Orix Metro Leasing Finance Corporation (a
MANAGEMENT subsidiary of the Bank) holding less than 0.1% share. In Orix’s latest publicly available GIS
(2021), Mrs. Villa is not anymore recorded as director or owner.
BUSINESS AND RISK MANAGEMENT STRATEGIES Business Risks:
- Reliance on member-dealers for sales growth
- Intensifying competition with online sellers
- Saturated market for shoes & apparel
- Consumers' inclination to imported brands

Mitigants:
- The Company started to directly sell its products to wholesalers/retailers nationwide.
Product distribution now accounts for 35% of 2023 revenues per client. Meanwhile, direct
selling activities of resellers are shifting towards e-commerce platforms for wider customer
reach.
MANAGEMENT RISKS AND MITIGANTS -Natasha has a strong recognition as a reliable homegrown brand. Its products are affordable
given its partnership with manufacturers that create its in-house brand. NSMC's resellers also
provide convenience to buyers as their carry multiple brands.
- NSMC is expanding its branch network to areas outside NCR where personal and direct
marketing is preferred. Notably, 20 out of 25 branches are based outside Metro Manila.

Management risk: Advancing age of the principals (ages 56 and up).

INDUSTRY
RISK INDUSTRY STRATEGY Maintain
INDUSTRY STRUCTURE Positive annual growth is expected for the country’s direct selling industry driven by the
intensifying inclination of consumers towards direct selling for extra income opportunities
(Euromonitor, Mar 2023) and growing preference of buyers to check and validate a product
prior to purchase. Direct selling revenues in the country reached US$1.37(P68.50Bn at P50/
US$) in 2021 and is estimated to reach US$1.75Bn (P96.25Bn at P55/US$) in 2026,
equivalent to a CAGR of 5.02%.
The top product segments in direct selling are Cosmetics/Personal Care and Apparel. Both
segments experienced rebound in demand in view of the return to school and physical
workplaces, and the resumption of away-from-home social activities of consumers. As
forecasted by Statista:
1. Cosmetics and Personal Care – Expected to grow by 1.28% annually (CAGR 2023-2028)
2. Apparel – Expected to grow by 3.53% annually (CAGR 2023-2027)
REGULATORY ISSUES NSMC is covered by the Consumer Act, the country’s policy of conduct in the trading
business.
Direct selling specifically falls under Article 53, which prohibits chain distribution plans or
pyramid sales schemes. These are defined as sales devices whereby a person is granted the
right to recruit another individual, for profit, upon the condition that he makes an investment,
where profits are derived primarily from the recruitment of other persons rather than from
the sale of consumer products.
In 2022, the DTI issued Department Administrative Order (DAO) 21-09 or the Guidelines on
the Grant of the DTI Seal of Legitimacy for Legitimate Direct Selling and Multi-level
Marketing (MLM). Under the administrative order, firms engaged in direct selling and MLM
(trading through distributors which may build their own sub-network) may apply for a Seal
of Legitimacy to distinguish them from companies that conduct scams. Companies granted
the seal would be subject to periodic and random audits.
INDUSTRY RISKS & MITIGANTS Direct selling companies continue to compete against e-commerce offerings which have
been dragging down prices. On top of this, the inability of sellers/agents to generate high
volume of leads may restrict topline growth.

Mitigants:
- NSMC is able to sustain its competitive pricing by banking on its partnership with leading
brands and manufacturers that produce its in-house products. The Company also has 25
physical stores which are concentrated outside NCR to support F2F marketing activities.
-Development of new products and quarterly updating of catalogues diversify its portfolio.
brand recognition provides the company flexibility to offer new products with less market
introduction risk.
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation
Date Prepared 2023-07-14
PRODUCTS AND SERVICES
TYPES OF PRODUCT SERVICES & %
CONTRIBUTION TO REVENUES
BRANDS
COMPETITORS, RANKING AND MARKET SHARE
COMPETITIVE ADVANTAGE
PRODUCT RISKS AND MITIGANTS
PRODUCTION FACILITIES
MANUFACTURING FACILITIES
MACHINERY
PRODUCTION PROCESS
INSURANCE COVERAGE AND INSURER
PRODUCTION RISKS AND MITIGANTS
LOGISTICS - WAREHOUSE AND DISTRIBUTION NETWORK
TRADING AREA
SALES FORCE
WAREHOUSE FACILITIES
( Page 12 of 17 )
CONFIDENTIAL
PRODUCTS - %
House Brand- Apparel & Shoes - 28.75%
Undergarments - 27.77%
Tru (Natasha Cosmetics) - 9.68%
Partner Brand- Beauty Products - 9.49%
Partner Brands- Apparel & Shoes - 9.11%
Kids - 5.21%
Sports - 4.83%
Others - 5.17%
Total - 100%
HOUSE BRAND - PRODUCTS
Natasha Shape - Undergarments
Nathaniel - Apparel, Shoes, Slippers, Bags, Undergarments
Nathaniel Sports - Bags, Shoes
Natasha Kids - Apparel, Bags, Shoes, Slippers, Undergarments
Natasha Beauty - Cosmetics, Fragrances, Foot Scrub, Lotion
Tru - Cosmetics
PARTNER BRANDS PRODUCTS
Victoria Secret - Fragrances
Unilever - Camay Soap, Dove (cleanser, lotion)
Procter & Gamble - Pantene, Olay, Vicks, Gillette
Unilab - Myra E, Tiki-tiki, Ceelin, Enervon, Growee, pH care,
Other partner brands that supplies apparel are 101 New York, Walker, Vans, Moose Gear,
Mossimo, Mint, Umbro, Petrol and Maldita while other partner brands such as Triumph,
SOEN & Walker supplies undergarments.
COMPETITORS
Natasha competes with other direct sales companies such as Avon Cosmetics Inc., Personal
Collections Direct Selling Inc., Boardwalk Business Ventures Inc., Human Nature, among
others.
(CONT)
Natasha also competes against online retailers and well-known companies that sell broad line
of products through retail establishments.
COMPETITIVE ADVANTAGE
- With brand recognition arising from 34 years of successful track record
- With established network of 520,000 active member-dealers nationwide
RISKS
- Its products can easily be substituted by other brands which may be more affordable.
- Failure to maintain quality and safety of its products which could result to diminished
reputation, liability claims, among others.
- Inventory Obsolescence – out of style & expired beauty products
(CONT)
Mitigants:
- Partner brands are already well-entrenched in the market and comparable in terms of pricing
- Long-term relationship with third-party manufacturers
- The client uses In-house Developed System called Prims and they used first-in-first-out
(FIFO) method for accounting of inventory.
MANUFACTURING FACILITIES:
N/A - Purely trading operations
N/A
N/A
N/A
N/A
Natasha distributes its products over the country through its distribution network comprised
of one centralized warehouse and 25 branches, as detailed below:
- Admin Office and Central Warehouse: Pasig
- NCR-based branches (5) - Alabang, Caloocan, Mandaluyong, Fairview, Pasay
- Luzon (9) - Imus, Lipa, Naga, Bulacan, Puerto Princesa, Ilocos Norte, Isabela, Tarlac,
Urdaneta
- Visayas (5) - Bacolod, Cebu, Dumaguete, Ilo-ilo, Tacloban
- Mindanao (6) - Butuan, CDO, Davao, Dipolog, Gen san, Zamboanga
At present, the Group has 520,000 active distributors nationwide.
The administrative office and central warehouse is located at 1610 Amang Rodriguez Ave.,
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 13 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

Brgy Dela Paz., Pasig City. Each of Natasha's 25 branches also serves as distribution centers/
warehouses.
DELIVERY FLEET The company has numerous motorcycle for its small deliveries and 400 vans for bulk orders.
DELIVERY RISKS AND MITIGANTS N/A
KEY INPUTS AND COST DRIVERS
KEY INPUTS / RAW MATERIALS Finished goods from exclusive manufacturers of Natasha in-house brand and inventory items
from various partner brands such as:
- Personal Care: Victoria's Secret, Unilever, Procter & Gamble, Unilab
- Apparel: 101 New York, Walker, Vans, Moose Gear, Mossimo, Mint, Umbro, Petrol,
Maldita
- Undergarments: Triumph, SOEN, Walker
MAJOR SUPPLIERS
Majority (90%) of the products are sourced locally. Mjor local suppliers include the ff:

SUPPLIERS
1. Loewe Marketing-Apparel (House brand)
2. GWDY Marketing-Apparel (House brand)
3. Milestone Garments Mfg.-Apparel (House brand)
4. Shoetech General Mdsg. Inc-Shoes (House brand)
5. Triumph International (Phils.), Inc.-Undergarments (Triumph)
6. Accuwork Company, Inc.-Undergarments (House brand)
7. Ul Skin Sciences, Inc.-Unilab(Vitamins)
8. Shujimo Trading Inc.-Shoes (House brand)
9. Random House Garments Mfg-Apparel (House brand)
10. Marco Shoe Factory-Apparel (House brand)

Some finished goods and raw materials are imported from China and Thailand.

CREDIT TERMS:
LOCAL - 60 days via Fund Transfer
FOREIGN - 35% down payment; full payment upon shipment of goods-Telegraphic Transfer
-;LC (for Unilever only)
INVENTORY MANAGEMENT The client uses In-house Developed System called Prims. They used first-in-first-out (FIFO)
method for accounting of inventory.
INSURANCE OVER STOCKS Seaboard-Eastern Insurance Company Inc.
MANPOWER The group currently employs 800 employees.
SUPPLY & MANPOWER RISKS AND MITIGANTS No supply risk noted but manpower is challenged by high turnover rate of members/dealers
Mitigant: Direct selling continues to provide income opportunities for dealers. It remains to
be an attractive earning opportunity for individuals. Natasha's membership is lifetime and
inactive members can return to direct selling anytime. Nevertheless, NSMC has also started
to directly tap end-users through its Natasha app, social media sites, and e-commerce
platform (Lazada).
KEY REVENUE DRIVERS
DEMAND FOR PRODUCTS The resumption of normal social & economic activities, access to physical retail outlets,
resurgence of household disposable incomes, and expanding distribution channels such as
online stores and specialty stores supports the renewed demand for footwear, cosmetics, and
apparel. According to Statista's market research, the country's direct selling market generated
total retail sales value of USD 1.37Bn (P75.35Bn) in 2021 and it is forecasted to grow to
USD P1.75Bn (P96.25Bn) in 2026.
PRICING NSMC's target market is the socioeconomic class C to D. As such, its products are priced
affordably with most items being priced below P1,000. The Company also launches regular
Budget Deals or a collection of offerings with most items priced below P500, and rides on
the monthly discount promo largely advertised by online shops through product bundling
methods such as Buy 3 Get 1 Free promos.
MAJOR BUYERS
As a predominantly direct selling business, NSMC's buyers are its member-dealers.
Members buy products at a discount and sells it to end users using NSMC's suggested retail
price.

Dealers' discount and credit terms are based on their volume of orders and internal credit
rating, as categorized below:
- Members: 25-30% discount, credit term of up to 37D vs. Trust Receipt, PDC, or Cash
Bond
- Fashion Pro Members (with monthly sales of P20K and up): 32-49% discount, credit term
up to 60D
NSMC's internal credit rating system for dealers is detail below:
Credit Ratings:
A - Prompt payments or with occasional late payments not more than 5% of total sales in the
past 6 months
B - With late payments amounting to more 5% of total sales in the past 6 months
C - With overdue accounts, subject to at least 5% penalty; Not anymore eligible for credit
terms
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 14 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

D - Account turned over to NSMC's in-house lawyer

SELLING RISKS AND MITIGANTS - With dealers accounting for 65% of sales, dealers' inability to generate leads may hamper
NSMC's sales growth.

Mitigants: Natasha is a known local brand that banks on tailor-fit and personal marketing
strategies, an approach that remains effective for NSMC's target market (socio-economic
class C to D) who prefer reliable sellers with personal product recommendations. Strong
brand recognition, competitive price point, and flexibility to shift to in demand products are
also among NSMC's advantages.
COLLECTION RISKS AND MITIGANTS Collection Risk from Resellers

Mitigant: Resellers are subjected to an internal credit risk rating systems and receivables are
secured by Trust Receipts, PDCs, or Cash Bonds. Past dues are charged with at least 5%
penalty and the company also employs an in-house lawyer for uncollectible accounts.
2. BRIEF FINANCIAL ASSESSMENT - HISTORICAL
FS PERIODS 2021 AFS - Audited by Isla Lipana & Co.
SALES GROWTH NSMC posted sales of P1.76Bn, or an 8.56% improvement from 2020, but this is still just
85.73% of the Company's pre-pandemic sales performance. While NSMC boosted its online
presence and directly tapped end-users, direct selling through dealers remain the Company's
topline driver. Direct selling activities remain slow with consumers' lower disposable income
in 2021 and limitations in person-to-person marketing.
.
NSMC operates on thin margins to maintain its competitive price point. With weak topline
and cost pressures on account of inflation, the Company registered a reduced GPM of 26.90
% (from 35.13%), equivalent to a gross profit of P472.44MM (down by 16.86% from 2020's
P568.22MM). Of note,COGS include P14.68MM worth of Provisions for Inventory Returns,
which was just set up in 2021. Excluding the Provisions, GPM would be at 27.74% which is
still below the historical average GPM of 32.55% (2018-2019).
PROFITABILITY The Company was able to cut its opex to sales ratio to 35.81% (from 38.57%) by reducing its
promotion expense (down by P11.82MM to P32.32MM), corporate events expense (down by
P13.81MM to P15.17MM), and commissions (down by P10.77MM to P20.08MM).
However, cost saving efforts were still inadequate to keep operations afloat as the company
posted a wider operating loss of P156.35MM (from op loss of P55.66MM) due to its thin
gross profit.
.
The Company generated interest and miscellaneous income totaling P2.97MM, but these
were surpassed by non-cash charges, namely Provisions for Doubtful Accounts (P32.6MM),
Provisions for Inventory Obsolescence (P30.40MM), and Retirement Benefits (P16.56MM).
Net loss settled at P177.15MM, triple of previous years' net loss (P57.94MM) and equivalent
to NMPM of negative 10.09%.
EXTRAORDINARY ITEMS
AR COLLECTIONS Receivables were collected within 38 days, slightly longer than previous year's 31 days but
within NSMC's average credit term to dealers which range from 37 to 60 days. While
collection period is within the normal range, we note of the tripled value of Allowance for
Doubtful accounts (from P18.92MM to P48.96MM) which is reflective of NSMC's
confidence on the quality of its receivables. As of end-2021, AR amounted to P134.11MM
and comprise 7.11% of total assets.

INVENTORY TURNOVER Inventory Turnover normalized to 4 months (127 days per AFS) from 2020's 8 months (253
days). While NSMC has good prospects for recovery in 2022, it kept a lower ending
inventory level of P445.33MM (down by 38.73% from P726.81MM) as it manages its
purchases and trim down stock to reduce obsolescence. Of note, the Company increased its
Allowance for Inventory Obsolescence to P28.25MM from P17.23MM while making efforts
to liquidate its slow moving items through product bundling and discounts.
Inventory accounts for 25.12% of NSMC's assets.
OTHER ASSETS - The Company has a high level of reserved cash at P589.40MM or 31.26% of its total
assets.
- Fixed assets stood at P293.76MM (15.58% of the total).
- Other Assets were also substantial at P325.11MM (17.24% of the total) and were
comprised of Retirement Benefit Asset (P106.05MM), Deferred Tax (P80.25MM), Loans
Receivables (P69.26MM), Deposit for Asset Purchase (P33.00MM), Finance Lease
Receivables (P16.67MM), Deferred Input VAT (P16.24MM) and Refundable Deposits
(P3.08MM).
DAYS PAYABLE Trade Payables were settled within 131 days, albeit faster than the 168-day average in 2020,
this is longer than the reported payment terms to suppliers of up to 60 days. NSMC remains
to be a good payer to suppliers and the long DP vs. ave. payment terms may be indicative of
the client's good working capital management, beng able to defer payment to conserve cash.

Trade Payables at year-end stood at P460.76MM, 4.80% lower from previous P483.97MM.
Trade payables comprise 23% of total liabilities.
Of note, bulk or 86% of liabilities pertain to Loans from Related Company (P1.34Bn) which,
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 15 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

as per client, are actually non-interest bearing advances from shareholders.

NET OPERATING CASH FLOWS Shorter CCC of 34 days (from 116 days) due to better stock management and faster
inventory liquidation resulted in healthy NCAO of P139.39MM, albeit lower than previous
year's P312.10MM due to thinner profits. NSMC has sufficient operating cash to pay its
lease liabilities and related interest, resulting in positive Cash After Debt Amortization of
P64.42MM. However, to keep operations afloat, the Company tapped into its hefty cash
reserves which led to the decline in ending cash to P589.40MM from P613.27MM.
LEVERAGE Impaired balance sheet position as consecutive net losses turned equity negative resulted in a
negative DE of 25.32x (from negative 139.41x). The Company has no bank debts, only
lease liabilities amounting to P86.80MM. Debt-to-EBITDA and Gearing at end-2021 is at
negative 1.12x.

NOCG INTEREST COVER RATIO EBITDA coverage of interest related to lease liabilities is at negative 30.11x.
NOCG DEBT SERVICE COVER RATIO EBITDA coverage of short term lease liabilities + interest is at negative 1.39x.
3. BRIEF FINANCIAL ASSESSMENT - FORECAST
FORECAST PERIOD 2022 - 2024
SALES GROWTH >2022-2023:
Tentative FS 22 showed revenues contracting by 7.48% to P1.76Bn (FY21: 1.76Bn) due to
sluggish demand. Client expected this downtrend to continue with FY23 sales forecasted to
decline by 15% to P1.38Bn due to missed sales opportunity from the unexpected reopening
of schools for the current academic year, and approx. P100MM in lost sales from shifting
resources from BAU activities to the on-going merger.
-
>2024:
NSMC's sales for 2024 is expected to be flat. However, the merger with SBJ is forecasted to
boost NSMC's topline by at least a billion (SBJ FY22 sales: P1.11Bn) to P2.38Bn. To note,
SBJ has also been posting weaker topline since the pandemic (from peak sales of P2.28Bn in
-
FY19). The Company has been implementing similar sales strategies as NSMC, with focus on
face-to-face marketing. While revenues are still in recovery, the merger of the two business is
expected
3 to improve profits on lesser opex from streamlined operations.

PROFITABILITY -

>2022-2023:
-- NSMC expects to remain on the red with estimate net loss of P194.94MM in 2022
-
(FY21:net loss of P177.15MM) as improvement in GPM to 27.69% (from 26.90%) was
insufficient to adequately cover operating expenses of P656.19MM (40.39% of sales). The
largest opex is Salaries & Wages which is estimated to account for 85% of total opex (excl.
depreciation). To streamline manpower, NSMC started to offer early retirement packages to
- employees since 2020. Retirement benefits paid by the company are also lodged under
its
opex.
- The benefits of the on-going manpower reduction (i.e. decrease in salaries & wages
expense) are expected to be increasingly felt in 2024. The consolidated operating loss of
NSMC and SBJ is estimated at P111.43MM for FY23, showing signs of improvement from a
-
wider consolidated operating loss of P483.33MM in FY22.
- From 1,500 employees in 2019, manpower is now down to 800 as of 09/01/2023.

>2024:
-- The client is optimistic of a stronger operating performance in 2024. However, conservative
assumptions of a flat sales growth and average margins still yield consolidated operating loss
of ~P26MM; but this is seen to be at positive P3MM if we exclude non-cash expenses (depn).
3
CHANGE IN WORKING CAPITAL REQUIREMENT From the estimate consolidated WCR of P621.84MM in 2022, cost reductions are seen to
lower WCR by 17% to of approximately P514MM for 2023 and 2024.
NET OPERATING CASH FLOWS WCR is expected to be funded by cash reserves until operations recover. Consistent with the
client's borrowing history, minimal loan availments are expected until end of 2022 through
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 16 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

2024.
LEVERAGE Although loan availments are minimal, the weak equity base will continue to post negative
DE and gearing ratios, unless stockholding is increased via fresh capital infusion.

NOCG INTEREST COVER RATIO

NOCG DEBT SERVICE COVER RATIO WCR is expected to be funded by cash reserves. Consistent with the client's borrowing
history, minimal loan availments are expected until end of 2022 through 2024.

X. CREDIT INFORMATION
1. BRIEF CREDIT HISTORY
HISTORY OF DECLINED/DISAPPROVED/ None
DEFERRED PROPOSALS
HISTORY OF RESTRUCTURING/DELAYS IN None
PAYMENT/EXTENSIONS OF PAYMENT DUE
CREDIT HISTORY- OTHER RELEVANT Credit lines remain unutilized since line establishment in 2019.
INFORMATION
2. HISTORICAL ACCOUNT BEHAVIOUR 1-12 MONTHS PRIOR 13-24 MONTHS PRIOR
INCIDENTS OF TOD(S) NSMC has no incident of NSF, OD, DAU None
from July 2022 to June 2023 per system
checking dated 07/20/2023.
REASONS FOR TOD(S) N/A N/A
INCIDENCES OF DELAYED PAYMENTS None None
REASONS FOR DELAYED PAYMENTS N/A N/A
HIGHEST TOTAL OUTSTANDING Nil. The client has no availment since line Nil. The client has no availment since line
establishment in 2019. establishment in 2019.
LOWEST TOTAL OUTSTANDING Nil. The client has no availment since line Nil. The client has no availment since line
establishment in 2019. establishment in 2019.
OUTSTANDING DOCUMENT DEFICIENCIES None None
& AGING
3. TRADE CHECKING - BUYER TOP 10
DATE OF TRADE CHECKING
TOTAL AVERAGE MONTHLY VOLUME
TOTAL AVERAGE MONTHLY VALUE
AVERAGE CREDIT TERMS - Around 65% of sales are based on pooled volume from NSMC's 520,000 resellers.
- The client is not amenable to provide contact details of corporate clients (wholesalers/retailers)
which account for 35% of sales.
FINDINGS
DETAILS OF ANY NEGATIVE FINDINGS
OTHER RELEVANT INFORMATION
4. TRADE CHECKING - SUPPLIER TOP 10
DATE OF TRADE CHECKING
TOTAL AVERAGE MONTHLY VOLUME
TOTAL AVERAGE MONTHLY VALUE
AVERAGE CREDIT TERMS Based on BIS data, NSMC's import volume reached USD 1.14MM in 2022 and USD 626K as of
August 2023.

The client declined to provide contact details for local suppliers which account for 90% of inventory.
FINDINGS
DETAILS OF ANY NEGATIVE FINDINGS
OTHER RELEVANT INFORMATION
5. NEGATIVE FINDINGS
SOURCE NDBS
OTHER SOURCES IDBS / LEXIS NEXIS
FINDINGS ON Dated 09/19/2023 and 09/25/23
VERIFICATION
DETAILS OF NEGATIVE FINDING(S) IDBS inquiries dated 09/19/2023 and 09/25/2023 indicated no reflected match between the borrower
and relevant parties. No record found on the ff. names inquired:
ERCA Ref. No. 376353 - Natasha Sales & Marketing Corporation ( Page 17 of 17 )
Date Prepared 2023-07-14 CONFIDENTIAL

1. Natasha Sales & Marketing Corporation

2. SBJ Marikina Shoe Exchange Corporation
3. Majar B. Jardiolin (Chairman and surety)
4. Sebastian B. Jardiolin (Treasurer and surety)
5. Victoria B. Jardiolin (President)
6. Ma. Dinah Dawn J. Bitong (Vice President)
7. Mary Anne Cuartero (Corporate Secretary)
N/A
6. KEY RISK AREAS
KEY RISK AREA 1. Financial Risk - Issue on Going Concern
2. Reliance on selling agents (65% of sales) for revenue growth
3. Product obsolescence
MITIGATING FACTORS - Efforts to streamline operations and reduce cost are expected to improve operating performance in
2024. The client also started to directly distribute its products (35%) of sales and continue
expansionary efforts outside NCR.
- The company launches new products every quarter and adds in-demand products to its portfolio to
cater to the changing preference of consumers.
KEY RISKS TRIGGERS Please see the table below for the Key Risk Triggers.
MONITORING STRATEGY - Monitor debt level via quarterly CIR checking
- Frequent communication with the client to check updates on business and plans for recovery
- Monitor deposit credits