Financial Analysis of Semirara Mining Corporation for the years ended December 2011 and 2010.

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EXECUTIVE SUMMARY

The attached report analyzes the financial position of Semirara Mining Corporation.

Semirara Mining Corporation is a publicly-listed mining company and a subsidiary of the DMCI

Holdings, Inc. The company is engage in the business of coal mining and coal production. As of

now, Semirara Mining Corporation is the only large-scale coal producer in the Philippines and is

engaged in surface open cut mining of thermal coal from its Panian mine on Semirara Island, in

the Antique Province. The company is publicly traded on the Philippines Stock Exchange (PSE).

The company’s competitors are composed mainly of suppliers of imported coal. More

than 90% of the total coal production in the county is produced by the company.

This report summarizes Semirara Mining Corporation’s financial position from 2010 to

2011. The company increased its sales from 2010 to 2011. High coal prices and increase in

energy sales resulted to a 13% growth in the consolidated Revenues in 2011 and 2010. Net

earnings registered an outstanding growth of 51% from consolidated net income after tax in

2010. Earnings per share posted a 40% growth in 2011. Conversely, the current ratio dropped

by 16% from 2010 to 2011. On the contrary, the Debt-to-Equity ratio improved by 4%.

In summary, the company’s strategic and efficient management of resources as well as

consistent efforts to improve its present operation ensured a healthy cash generation in 2011.

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PURPOSE OF FINANCIAL STATEMENT ANALYSIS:

Financial statements provide historical information of the firm’s financial state,

operating results and other business activities. It gives the reader a broad view of the firm’s

profitability and financial conditions. One cannot utilize the information in financial statement

in decision making unless one performs a financial statement analysis.

Complete financial analysis provides the information about the profitability of the

business firm, its ability to meet its obligations; the safety of the investment in the business and

effectiveness of the management in running the firm.

The main function of financial analysis is to aid users make informed decisions. Users of

accounting information comprises the management, internal auditors, consultants and mainly

parties involved in decision making in the organization. The purpose of financial analysis is to

provide information to improve the efficiency and effectiveness in producing output. Financial

analysis provides investors a basis for making investment decisions. Meanwhile, banks and

other lending companies utilize the information provided by the financial analysis in granting a

company capital or debt securities.

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COMPANY INTRODUCTION:

COMPANY HISTORY:

On 11 July 1977, the Government through its former Energy Development Board, now

the Department of Energy (DOE), awarded a 35-year coal operating contract to a consortium

formed by three private companies. On incorporation of the Company, these companies

subscribed equally to the Shares and, in exchange for the Shares, they assigned the Coal

Operating Contract to the Company, which was then known as Semirara Coal Corporation. As a

result of their financial difficulties, two of the three initial shareholders transferred their Shares,

which had been provided as security for loans from Government financial institutions, to the

National Development Corporation (NDC) after the lenders had foreclosed on the loans. In

order to obtain control of the Company, NDC bought the Shares of the third initial shareholder

to obtain a 95% interest in the Company. The Coal Operating Contract, which was amended by

an agreement dated 8 June 1983, gives the Company the exclusive right to conduct exploration,

development and coal mining operations on Semirara Island until 2012. The DOE has stated

that the Company may apply for extension or renewal of the Coal Operating Contract one year

before its expiry date. In return for the mining rights granted to the Company, the Government

is entitled to receive annual royalty payments calculated on the basis of gross revenues less

allowable expenses. The DOE is entitled to receive 30% of the resulting amount, or a minimum

of 3% of gross revenue.

Coal resources were initially discovered at two sites on Semirara Island, at Unong and Panian,

with the Himalian resource remaining undiscovered until 1981. The development and opening

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of the first mine at Unong was a turnkey project contracted and funded through a credit facility

provided by Voest Alpine, an Austrian state-owned company. All internationally sourced

equipment and services were financed by the credit facility which was denominated in Austrian

schillings. The Company had earlier entered into a coal supply agreement with the

Government-owned National Power Corporation to provide coal to its Calaca plant and the CSA

was used as collateral for the credit facility.

Production at the Unong mine commenced in early 1984 with final acceptance of the

project by the Company occurring in 1987 following the resolution of technical issues raised by

the Company. The settlement with Voest Alpine included a restructuring of the terms of the

loans provided under the facility. However, due largely to lower than anticipated coal prices

and an increase in borrowing costs due to the depreciation of the Peso against the Austrian

schilling, the Company incurred significant losses. The Company negotiated a second

restructuring of the terms of the loans and Voest Alpine also agreed to a partial debt to equity

conversion which gave it a 40% interest in the Shares.

In February 1997, DMCI Holdings, Inc. (DMCI-HI), a PSE-listed holding company for

construction and other businesses in the Philippines, purchased Voest Alpine’s 40% interest in

the Shares, together with outstanding loans made by Voest Alpine to the Company amounting

to P2.5 billion.

A new management team consisting of local and expatriate staff was installed by DMCI-

HI in August 1999 and operated at the Unong mine until it became uneconomical to continue

mining the remaining coal reserves. In January 2000, as the Unong mine approached the end of

its economic life, the Company closed the operation after 17 years of extraction, and preceded

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with the development of the new Panian mine. Mining operations commenced at Panian in the

third quarter of 1999 when the Environmental Clearance Certificate was obtained. The

Company had employed a continuous mining system at Unong that relied on bucketwheel

excavators supported by smaller equipment. However, a conventional mining system using

trucks and shovels was employed at Panian. Given the suitability of this mining technique to the

Panian mining conditions, the mining operations have proved to be more flexible and cost

efficient for the Company. The bucketwheel excavators used at Unong are now used only in

reclamation operations in the Panian stockyard. In 1999, the new management also installed a

coal washing plant which improved the coal quality through lower ash content and

consequently demand for the Company’s coal increased.

Following further financial difficulties experienced by the Company, DMCI-HI agreed to a

debt to equity conversion in 1998, which gave it a total interest in the Company of 74%. The

Company has consequently undergone a capital restructuring in 2004, pursuant to which it

canceled P1, 625.9 million of its outstanding share capital in order to eliminate an accumulated

deficit of that amount which had accrued as a result of losses in previous years.

In addition, in July 2004 the Company issued 19,657,388 Shares to DMCI-HI, taking its

shareholding to the current 94.5%, and on 3 December 2004, the Company issued a stock

dividend of P225 million consisting of 225 million Shares in favor of all holders of record as at 25

November 2004.

In 4 February 2005, the Company etched a new milestone in its history when it

successfully culminated an international public offering. This event reactivated the trading of

Semirara stocks at the Philippine Stock Exchange under the ticker symbol “SCC”. The exercise

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generated P1.6 billion for the Company, providing sufficient liquidity to fully pay its restructured

local and foreign debts and update trade accounts and royalties to the DOE. In addition, it

enabled the Company to pay the required down payments for new mining equipment

programmed for its modernization and expansion to augment production capacity. As a result

of the Offering and the Domestic Placement, DMCI-HI reduced its shareholding to

approximately 60.0%.

The Company has significant resources and reserves which supply a growing demand for

coal. As at 30 June 2004, the Company’s in-situ coal resources at the Panian and Himalian sites

were estimated at 210 million tonnes and 120 million tonnes, respectively. The estimated

recoverable coal reserves at the Panian mine of 52.1 million tonnes are sufficient to support the

Company’s target coal production rates for at least 10 years. The Company’s reserve estimates

have been independently reviewed by Minarco Asia Pacific Pty Limited.

Consequently, in 2006 Australian consultants supervised additional confirmatory drilling

activities in the Panian Pit in accordance with the Joint Ore Reserve Committee (JORC)

standards of Australia (an internationally recognized body for establishing mineable reserves).

As at 31 December 2006, 62 million MTs of coal were classified as measured and confirmed,

while additional 24.5 million MTs and 6 million MTs were categorized as indicated and inferred,

respectively. The Company’s coal is characterized as sub-bituminous-B and is appropriate for

use in a wide range of combustion facilities.

Semirara Mining Corporation is a consistent awardee in SEC’s Corporate Governance

Scorecard for publicly-listed companies in the Philippines program since 2008 and among the

Top 20 Philippine Listed Companies accorded the same recognition in 2007. Likewise, the

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company was among FinanceAsia’s 2010 awardees for Most Committed to a strong dividend

policy. Since its IPO, the company has been consistently paying 20% cash dividends.

In 2010, the company successfully raised additional equity through Stock Rights Offering

for 59,375,000 shares at PHP74/share. This activity generated net proceeds of PHP4.38 billion,

of which, PHP2.7 billion was used to partly fund equity requirement of Sem-Calaca Power

Corporation (SCPC), while the balance was used to pay off debt relative to mining capacity

expansion.

PRODUCT:

COAL:

Coal is defined as a sedimentary rock composed predominantly of solid organic

materials with a greater or lesser proportion of mineral matter. It is derived from the

accumulation of plant remains in sedimentary basins, and is altered to solid rock by heat and

pressure applied during the basin’s development. Its quality varies according to the content of

ash, impurities, and volatile matter that decreases as coal rank gets higher. It has a natural dark

brown to black, graphite like appearance and is primarily used as a fuel. Types of coal according

to increasing rank (in terms of hardness, purity and heating value) are peat, lignite, sub

bituminous, bituminous and anthracite. It is a black or brownish black, solid combustible rock

containing less than 40.00% non-combustible inorganic components formed by the

accumulation, decomposition and compaction of plant materials under long-acting geological

processes.

Coal is used mainly in the generation of electricity and manufacture of cement.

Currently, coal fired thermal power plants remain as the number one producer of electricity

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and account for 3,967 MW or 25.00% of the country’s total installed powered generating

capacity.

The sub-bituminous coal has the following specifications:

Proximate Analysis (Air Dried, ASTM D3172)

Ash, % - ---------------------------------------------------------------: 8 - 17

Fixed Carbon, % -----------------------------------------------------: 34 - 38

Volatile Combustible Matter, % ----------------------------------: 36 - 40

Residual Moisture, % (Air Dried) ---------------------------------: 14 - 16

Total Sulfur, % (Air Dried, ASTM D2015) ----------------------: 0.4 - 1.0

Gross Heating Value, BTU/lb. (Air Dried, ASTM D2015) ----: 8,700 - 10,200

Hardgrove Grindability Index ------------------------------: 40 – 50

Size, mm --------------------------------------------------------------: 50

Fines, 0-2 mm --------------------------------------------------------: <20%

Ash Fusion Temperature, ºC

Initial Deformation Temp., ºC ------------------------------------: 1,120 – 1,150

Hemispherical Temp., ºC -----------------------------------------: 1,150 – 1,250

Flow Temperature, ºC -------------------------------------------: 1,250 – 1,500

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PRODUCTIONS AND OPERATIONS:

COAL:

The company is operating an open-cut coal mine. This entails removing minerals by

excavating a “pit” into the earth’s surface. Open pit mining is quite different from underground

mining, which utilizes tunnels dug below the earth’s surface.

The acquisition and operation of the 2 X 300 MW power plants in Calaca, Batangas

provided captured market for the coal business. Expanding power capacities will effectively

create demand security for the coal segment, thus giving the company more motivation to

expand in the energy sector.

The demand for Semirara coal is strong from the local and export markets. Local sales

are delivered to power plants, cement plants and other industrial plants. In February 2007, the

company started to export to China and India through three major coal traders.

SEM-CALACA POWER CORPORATION

The acquisition and running of the 2 X 300MW power plants in Calaca, Batangas gave

the company opportunity to advance its competence in operating power plants with bigger

capacities.

SCPC sales for bilateral contracts are attributed to 1) revised contract with BATELEC I; 2)

new power supply contracts with TransAsia Oil, Energy Development Corporation; and 3) and

arrangement with the NPC for a non-firm power supply to MERALCO on top of its existing

transition supply contract.

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VISION AND MISSION:

COAL towards an Energy-Sufficient Philippines

In its quest to promote the use of coal as a major energy source, Semirara Mining

Corporation will endeavor TO BE THE UNDISPUTED LEADER IN THE COAL MINING INDUSTRY IN

THE PHILIPPINES.

Playing a vital role in the energy sector and working in harmony with the government to

promote the use of coal

Supplying its customers with quality coal that meets their stringent specifications

Providing reasonable economic returns to its investors and business partners

Empowering its employees to prosper in a climate of integrity and excellence

Working in partnership with its host communities to uplift their economic and social

status while engaging in the judicious use and rational conservation of the country’s

natural resources

Semirara Mining CorporationConsolidated Statements of Financial Position

For the Years Ended December 31(in millions of pesos)

2011 2010 2009ASSETS:Current AssetsCash and cash equivalents 5,005 3,813 482

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Receivables 3,216 3,183 1,254Inventories 4,593 2,357 2,982Other current assets 1,310 912 609 Total Current Assets 14,124 10,265 5,327Noncurrent Assets:Property, plant and equipment 20,737 19,582 18,357Investments and advances 491 310 244Pension assets 1Deferred tax assets 17Other noncurrent assets 257 337 335 Total Noncurrent Assets 21,504 20,229 18,936 TOTAL ASSETS 35,628 30,495 24,263LIABILITES AND EQUITY:Current LiabilitiesTrade and other payables 7,299 5,349 3,254Short-term loans 1,011 450 845Current portion of long-term debt 2,993 1,133 1,814 Total Current Liabilities 11,303 6,932 5,913Noncurrent LiabilitiesLong-term debt-net of current portion 9,469 11,160 8,364Deferred tax liabilities 1 28 72Provision for decommissioning and site rehabilitation 48 15 18Pension liability 20 13 Total Noncurrent Liabilities 9,517 11,223 8,467 Total Liabilities 20,820 18,155 14,380EquityCapital stock 356 356 297Additional paid-in capital 6,676 6,676 1,577Deposit on future stock subscription 5,402Retained earnings Unappropriated 7,077 4,608 2,437 Appropriated 700 700 700 Total Equity 14,809 12,340 10,413Cost of shares held in treasury (529) 9,884 TOTAL LIABILITES AND EQUITY 35,628 30,495 24,264


(in millions of pesos)Horizontal Analysis

December 31 INCREASE (DECREASE) 2011 2010 AMOUNT %

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ASSETS:Current AssetsCash and cash equivalents 5,005 3,813 1,192 31.26Receivables 3,216 3,183 33 1.02Inventories 4,593 2,357 2,236 94.88Other current assets 1,310 912 398 43.68 Total Current Assets 14,124 10,265 3,859 37.59Noncurrent Assets:Property, plant and equipment 20,737 19,582 1,155 5.90Investments and advances 491 310 181 58.22Pension assets 1 -Deferred tax assets 17 -Other noncurrent assets 257 337 (79) (23.57) Total Noncurrent Assets 21,504 20,229 1,275 6.30 TOTAL ASSETS 35,628 30,495 5,133 16.83

LIABILITES AND EQUITY:Current LiabilitiesTrade and other payables 7,299 5,349 1,950 36.46Short-term loans 1,011 450 561 124.58Current portion of long-term debt 2,993 1,133 1,860 164.17 Total Current Liabilities 11,303 6,932 4,371 63.05Noncurrent LiabilitiesLong-term debt-net of current portion 9,469 11,160 (1,691) (15.15)Deferred tax liabilities 1 28 (27) (97.86)Provision for decommissioning and site rehabilitation 48 15 33 217.20Pension liability 20 - Total Noncurrent Liabilities 9,517 11,223 (1,706) (15.20) Total Liabilities 20,820 18,155 2,665 14.68EquityCapital stock 356 356 - -Additional paid-in capital 6,676 6,676 - -Retained earnings - - Unappropriated 7,077 4,608 2,469 53.58 Appropriated 700 700 - - Total Equity 14,809 12,340 2,469 20.01 TOTAL LIABILITES AND EQUITY 35,628 30,495 5,133 16.83

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Figure 1: Semirara Mining Corporation’s Comparison of Changes of Assets in Pesos for the Years Ended

December 31, 2011 and 2010.

Figure 2: Semirara Mining Corporation’s Comparison of Liabilities in Pesos for the Years Ended December 31,

2011 and 2010.

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Vertical Analysis

2011 % 2010 %ASSETS:Current AssetsCash and cash equivalents 5,005 14.05 3,813 12.50Receivables 3,216 9.03 3,183 10.44Inventories 4,593 12.89 2,357 7.73Other current assets 1,310 3.68 912 2.99 Total Current Assets 14,124 39.64 10,265 33.66Noncurrent Assets:Property, plant and equipment 20,737 58.20 19,582 64.21Investments and advances 491 1.38 310 1.01Pension assets 1 -Deferred tax assets 17 0.05 -Other noncurrent assets 257 0.72 337 1.10 Total Noncurrent Assets 21,504 60.36 20,229 66.34 TOTAL ASSETS 35,628 100.00 30,495 100.00

LIABILITES AND EQUITY:Current LiabilitiesTrade and other payables 7,299 20.49 5,349 17.54Short-term loans 1,011 2.84 450 1.48Current portion of long-term debt 2,993 8.40 1,133 3.72 Total Current Liabilities 11,303 31.72 6,932 22.73Noncurrent LiabilitiesLong-term debt-net of current portion 9,469 26.58 11,160 36.60Deferred tax liabilities 1 0.00 28 0.09Provision for decommissioning and site rehabilitation 48 0.13 15 0.05Pension liability 20 Total Noncurrent Liabilities 9,517 26.71 11,223 36.80 Total Liabilities 20,820 58.44 18,155 59.53EquityCapital stock 356 1.00 356 1.17Additional paid-in capital 6,676 18.74 6,676 21.89Retained earnings Unappropriated 7,077 19.86 4,608 15.11 Appropriated 700 1.96 700 2.30 Total Equity 14,809 41.56 12,340 40.47 TOTAL LIABILITES AND EQUITY 35,628 100.00 30,495 100.00

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Figure 3: Distribution of Assets for the Year Ended December 31, 2011

Figure 4: Distribution of Liabilities for the Year December 31, 2011

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Figure 5: Distribution of Assets for the Year Ended December 31, 2010

Figure 6 : Distribution of Liabilities for the Year Ended December 31, 2010

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Semirara Mining CorporationConsolidated Statements of Comprehensive Income


2011 2010 2009REVENUECoal 16,202 14,242 11,500Power 9,612 8,656 443 25,814 22,898 11,943

COST OF SALESCoal 10,264 10,223 8,928Power 6,397 5,767 420 16,661 15,990 9,348

GROSS PROFIT 9,153 6,908 2,595OPERATING EXPENSES (2,857) (2,721) (743)INCOME FROM OPERATIONS 6,296 4,187 1,852OTHER INCOME (CHARGES)Finance costs (483) (668) (112)Foreign income 135 58 53Foreign exchange gains(losses)-net (38) 199 47Equity in net earnings(losses) of associates 77 (39)Other income 99 65 108

(287) (269) 57INCOME BEFORE INCOME TAX 6,009 3,918 1,909

PROVISION FOR (BENEFIT FROM) INCOME TAXCurrent 23 9 5Deferred (45) (44) 58 (22) (35) 63NET INCOME 6,031 3,953 1,846OTHER COMPREHENSIVE INCOME - -TOTAL COMPREHENSIVE INCOME 6,031 3,953 1,846

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(in millions of pesos)Horizontal Analysis

December 31 INCREASE (DECREASE) 2011 2010 AMOUNT %REVENUECoal 16,202.00 14,242.00 1,960.00 13.76Power 9,612.00 8,656.00 956.00 11.04 25,814.00 22,898.00 2,916.00 12.73COST OF SALESCoal 10,264.00 10,223.00 41.00 0.40Power 6,397.00 5,767.00 630.00 10.92 16,661.00 15,990.00 671.00 4.20GROSS PROFIT 9,153.00 6,908.00 2,245.00 32.50OPERATING EXPENSES (2,857.00) (2,721.00) (136.00) 5.00INCOME FROM OPERATIONS 6,296.00 4,187.00 2,109.00 50.37OTHER INCOME (CHARGES)Finance costs (483.00) (668.00) 185.00 (27.69)Foreign income 135.00 58.00 77.00 132.76Foreign exchange gains(losses)-net (38.00) 199.00 (237.00) (119.10)Equity in net earnings(losses) of associates 77.00 -Other income 99.00 65.00 34.00 52.31

(287.00) (269.00) (18.00) 6.69INCOME BEFORE INCOME TAX 6,009.00 3,918.00 2,091.00 53.37PROVISION FOR (BENEFIT FROM) INCOME TAXCurrent 23.00 9.00 14.00 155.56Deferred (45.00) (44.00) (1.00) 2.27 (22.00) (35.00) 13.00 (37.14)NET INCOME 6,031.00 3,953.00 2,078.00 52.57OTHER COMPREHENSIVE INCOME - -TOTAL COMPREHENSIVE INCOME 6,031.00 3,953.00 2,078.00 52.57

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Figure 7: Comparison of Changes in Pesos of the Elements of the Statement of Comprehensive

Income for the Years Ended December 31, 2011 and 2010

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Vertical Analysis

2011 % 2010 %REVENUE 25,814.00 100.00 22,898.00 100.00

COST OF SALES 16,661.00 64.54 15,990.00 69.83

GROSS PROFIT 9,153.00 35.46 6,908.00 30.17

OPERATING EXPENSES (2,857.00) (11.07) (2,721.00) (11.88)INCOME FROM OPERATIONS 6,296.00 24.39 4,187.00 18.29

OTHER INCOME (CHARGES) (287.00) (1.11) (269.00) (1.17)INCOME BEFORE INCOME TAX 6,009.00 23.28 3,918.00 17.11

PROVISION FOR (BENEFIT FROM) INCOME TAX (22.00) (0.09) (35.00) (0.15)

NET INCOME 6,031.00 23.36 3,953.00 17.26OTHER COMPREHENSIVE INCOME - -

TOTAL COMPREHENSIVE INCOME 6,031.00 23.36 3,953.00 17.26

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Figure 8: Distribution of Sales in Pesos for the Year Ended December 31, 2011

Figure 9: Distribution of Sales in Pesos for the Year Ended December 31, 2010

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FINANCIAL ANALYSIS:

HORIZONTAL ANALYSIS:

The company experienced an increase in coal and energy sales 13% growth in

consolidated revenues in 2011 from PHP22.89 billion in 2010 to PHP 25.81 billion in 2011. Coal

and energy revenues put up 1 PHP 6.20 billion and PHP 9.62 billion respectively.

Consolidated Cost of Sales increased by 4.20 % from PHP 15.99 billion in 2010 to PHP

16.67 billion in 2011. This is mainly due to significant increases in fuel, materials and supplies.

Gross profit rose by 32.50 % from PHP 6.90 billion to PHP 9.53 billion in 2010.This is

mainly due to an increase in selling prices for both the coal and power segment.

Operating expenses on the other hand increased by 5% from PHP 2.72 billion in 2010 to

PHP 2.86 billion in 2011. This can be attributed mainly to the Government Share of PHP 1.48

billion.

Consolidated Financing Cost dropped by 27.69%from PHP668.44 million in 2010 to

PHP483.29 million this year. As per the annual report, the decrease was due to the decline in

the balance of the SCPC loan which partly financed the acquisition of the power asset from

PHP9.6 billion in 2010 to PHP8.6 as at the end of 2011.

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As per the annual report, the Consolidated Finance Income rose by 132.76% from

PHP57.67 million to PHP134.88 million. Short-term placement rates improved in 2011. Foreign

exchange fluctuations resulted to consolidated Forex Losses of PHP38 million. In 2010, the

fluctuations were favorable to the Company resulting to recognition of consolidated Forex

Gains of PHP199.49 million. Consolidated Other Income of PHP99.91 was generated by the coal

segment mainly from sale of retired mining equipment and proceeds from insurance claims of

PHP53.55 million and 35.12 million, respectively. This posted a 52.31% growth from 2010 level

of PHP65.43 million.

Consolidated Net Income before Tax showed an impressive growth of 53% at PHP6

billion from PHP3.91 billion last year. Contribution from the coal and power segments,

amounted to PHP4.14 billion and PHP1.87 billion, respectively. Both business segments enjoy

Income Tax Holidays being Board of Investments registered companies, thus consolidated Tax

Provision amounted to a negative provision of PHP22.17 million consisting of final income taxes

of PHP22.76, net of deferred income taxes of HP44.93 million. The resulting consolidated Net

Income After Tax closed at PHP6.03 billion; the coal and power segments contributed PHP4.17

billion and PHP1.87 billion, respectively.

As regards to the company’s balance sheet, the company was able to increase its

investments particularly in property, plant and equipment, which summed up to PHP 35.63

billion. As regards to the company’s net receivables, it slightly rose up to 1% from PHP3.18 to

PHP3.21billion. According to the annual report, this is mainly due to the slowed down of coal

deliveries toward the end of the year, thus decreasing receivable level from PHP1.47 billion at

the start of the year to PHP1.07 billion as at year-end. Meanwhile, the power segment’s

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Receivables slightly increased to PHP2.15 billion from PHP1.71 billion from the start of the year,

while SLPGC recorded net Receivables of PHP384 thousand.

Consolidated Net inventories increased dramatically by 95% from PHP2.37billion to

PHP4.59billion. As per the company’s report that the coal production was at record high in

2011, the sales volume was controlled in congruence to the company’s strategy of maximizing

reserves.

As regards with Other Current Assets, it increased by 43.68% from PHP912 million to

PHP1.31billion. As per the company report, this is mainly comprised of Creditable withholding

taxes and advances to suppliers and other prepayments amounting to PHP418.92 million and

PHP891.51 million respectively.

The consolidated Total Current Asset increased by 38% from the beginning balance

PHP10.27billion, closing at PHP14.12billion.

Consolidated Non-Current Assets recorded a more modest 6.3% growth at PHP21.50

billion as at year end from beginning balance of PHP20.23 billion. As per the company’s report,

the net of depreciation, consolidated PPE closed at PHP20.74 billion, increasing by 5.90% from

beginning balance of PHP19.58 billion. As per the company report, more mining equipment

were purchased during the year, thus increasing the coal segment’s PPE from PHP3.70 billion

beginning balance to PHP3.72 billion ending balance; while rehabilitation works at the Calaca

power plants increased PPE from PHP15.88 billion beginning balance to PHP17.07 billion as at

yearend.

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Investment and Advances increased by 58.22% from PHP310.23 million beginning balance to

PHP490.79 million as at year end, representing sinking fund for the power segment.

Consolidated Other Non-Current Assets dropped by 19% from beginning balance of

PHP317.59 million to PHP257.38 million. The coal and power segments accounted for

PHP158.45 million and PHP98.93 million, respectively. The decrease is due to the recovery of

the related assets.

The resulting consolidated Total Assets posted a 16.83% growth, closing at PHP35.63

billion from PHP30.50 billion in 2010. The coal and power segments respectively accounted for

PHP12.61 billion and PHP23 billion inclusive of the assets relating to the pre-operating power

companies.

Consolidated Total Liabilities also increased by 14.68% from beginning balance of

PHP18.16 billion, closing at PHP20.82 billion. The coal segment accounted for Total Liabilities of

PHP9.38 billion, consisting of PHP6.7 billion and PHP2.68 billion current and Non-Current

portions, respectively. Meanwhile, the power segment’s Current and Non-Current portions

closed at PHP4.60 billion and PHP6.84 billion, respectively, resulting to Total Liabilities of

PHP20.82 billion.

Consolidated Current Liabilities increased by 63% from beginning balance of PHP6.93

billion to PHP11.31 billion as at year end. This is primarily due to the substantial Accounts and

Other Payables recognized by the coal and power segments amounting to PHP4.61 billion and

PHP2.69 billion, respectively. These liabilities principally arose from purchase of materials,

spare parts, fuel and contracted services. Consolidated Short-Term Loans likewise increased by

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124.58% from PHP449.85 million as at the start of the year to PHP1.01 billion as both business

segments’ working capital requirements for the period increased.

Conversely, consolidated Non-Current Liabilities decreased by 15.15% from beginning

balance of PHP11.22 billion to PHP9.52 billion as at yearend. According to the 2011 report, this

is primarily due to the reclassification of the maturing portion of both segments’ long-term debt

to short-term.

The 20% increase in consolidated Total Stockholders’ Equity, from beginning balance of

PHP 12.30 billion to close at PHP14.81 billion, came from the growth in Retained Earnings.

Despite paying out record high cash dividends during the year, both business segments’ robust

income generation during the period resulted to a stronger equity level.

VERTICAL ANALYSIS:

Semirara Mining Corporation’s common size income statements reveal that its cost of

sales favorably decreased 5% from PHP15.99billion in 2010 to PHP16.66billion in 2011. As per

the 2011 annual report, this can be attributed to an increase in the selling prices for both the

local and power segments. This made a favorable increase in the company’s gross profit by 5%

from PHP6.9billion in 2010 to PHP9.15billion in 2011. The operating expense slightly dropped

0.81 % mainly due to the increase in the sales in which covered the increase in the operating

expenses. Other income and Finance charges slightly dipped from 1.17% in 2010 to 1.11% in

2011. Despite the decrease in the benefit from the tax provision, the net income posted a 6.1 %

growth from 23.36% in 2010 to 17.26% in 2011.

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As regards with the company’s common size balance sheets, it may be noted that the

there is a significant increase in the company’s total current assets. It rose 5.98% from PHP

10.27 billion in 2010 to PHP14.12billion in 2011. This is mainly due to the increase in inventory

and acquisition of other current assets.

Due to strong revenues, the company was able to acquire Non-current Assets mainly

new investments and property, plant and equipment. The total Non-current Assets slightly

dipped a 6% from 2010.

Total Current Liabilities in 2011 are 20.29% of the total assets, higher than the 17.54% in

2010. On the contrary, Non-current Liabilities in 2011 are 26.71% of total liabilities, lower than

the 36.80% in 2010. As per the company’s report, this is mainly due to the reclassification of

maturing long term loans to short term.

Total Equity slightly rose a 1.09% from PHP12.34billion in 2010 to PHP14.81billion in 2011. This

may be attributed to the growth in the retained earnings.

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FINANCIAL RATIO ANALYSIS:

LIQUIDITY RATIOS 2011 2010

Current Ratio 1.25:1 1.48:1

Acid Test Ratio 0.73:1 1:1

Receivables Turnover 8 times 5 times

Average Age of Receivables 45 days 71 days

Inventory Turnover 5 times 3 times

Average Age of Inventory 76 days 131 days

Table 1: Semirara Mining Corporation’s Liquidity Ratios for the Years Ended December 31, 2011 and 2010

The Consolidated Current Ratio for 2011 dropped 16% from 1:47:1 in 2010 to 1:24:1.

Apparently, the company is a bit more liquid in 2010 than in 2011. The company may find it

difficult its current obligation when they mature.

Consequently, the Consolidated Quick Ratio for 2011 dropped 27% from 1:1 in 2010 to

0.73:1 in 2011. Though the quick assets rose a 17.51 % in 2011, the current liabilities

significantly rose a 63% from PHP 6.9billion to PHP11.30billion in 2011. This is mainly due to the

reclassification of long-term loans to short term.

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On the other hand, the receivables turnover improved 3 times from 5 times from 2010

to 8 times in 2011. The company was able to collect its receivables in 45 days, as they provide a

credit term of 30-45 days.

Likewise, the inventory turnover improved two times in 2011 from 3 turnovers in 2010

to 5 turnovers in 2011. The average age inventory improved from 131 days in 2010 to 76 days

in 2011. Likewise, this improvement can be reflected in the favorable growth in sales of the

company in 2011.

SOLVENCY RATIOS 2011 2010

Times Interest Earned 14 times 6 times

Debt to Total Asset Ratio 0.58:1 0.60:1

Debt-Equity Ratio 1.41:1 1.47:1

Equity Ratio 0.42:1 0.40:1

Table 2: Semirara Mining Corporation’s Solvency Ratios for the Years Ended December 31, 2011 and 2010

The company's times interest earned increased significantly 133.33% from 6 times in

2010 to 14 times in 2011. The figure is quite high and therefore satisfactory. The company can

afford all its expenses including interest expense, and still have a large amount left for net

income.

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The Consolidated Debt to Total Asset ratio favorably decreased 3.34% from 0.60:1 in

2010 to 0.58:1 in 2011. The figure suggests that the company’s owner’s equity was able to

finance its assets rather than creditors.

On the other hand, the Debt-to-Equity ratio improved by 4% from 1.47:1 from 2010 to

1.41:1 in 2011. As per the company's report, this is due to the reclassification of maturing long-

term loans to short term. The figure suggests that the risk assumed by the creditors decreased

and an increase in the company's solvency. Despite the fact that the debt-equity ratio improved

in 2011, the creditors still have a reason to worry since the company seems to rely in outside

financing.

Also, the Equity Ratio improved by 5% from 0.40:1 in 2010 to 0.42:1 in 2011. This is

primarily due to an increase in the retained earnings. As stated earlier, the company's creditor's

assume a large amount of risk since they provided more of the company's total asset though

the net income improved immensely.

The 2% change in financing company assets by equity from debt, as evidence by debt to

total assets and equity ratios, tremendously increase the solvency of the firm as shown by the

great improvement in its ability to cope with the financing changes.

PROFITABILITY RATIOS 2011 2010

31

Return on Sales 23% 17%

Return on Assets 18% 14%

Return on Stockholder’s Equity 29% 36%

Asset Turnover 0.78 0.83

Gross Profit Rate 35% 30%

Net Profit Rate 23% 17%

Pay-out Ratio 59% 45%

Earnings Per Share 16.93 12.10

Price-earnings Ratio 13.08 16.67

Table 3: Semirara Mining Corporation’s Profitability Ratios for the Years Ended December 31, 2011 and 2010

The return on sales and net profit rate registered a 35% growth from 17% in 2010 to

23% in 2011. The profit ratio is considered adequately satisfactory since the company is

engaged in a business which utilizes slow moving assets.

The company's Gross Profit Rate improved by 5% from 30% in 2010 to 35% in 2011. This

is primarily due to the change in the pricing policy made during the period. As per the

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company's report, the increase in selling prices was due to the increase in cost of sales per unit

sold for both of the coal and power segment.

The return on asset registered a 4% growth from 18% in 2010 to 14% in 2011. On the

other hand, the Asset Turnover dropped 6% from 0.83 in 2010 to 0.78 in 2011.

The Pay-out Ratio increased 31% from 45% in 2010 to 59% in 2011. 59% of the total

earnings of the company distributed to stockholders as dividends and 41% was retained in the

business for its growth and financing.

Earnings per share registered an increase of 40% from PHP12.10 in 2010 to PHP16.93 in

2011. The price-earnings ratio favorably dropped 3.59% from 16.67:1 in 2010 to 13.08:1 in

2011. This indicates that the investors are getting more earnings for their investment.

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CONCLUSION:

The Semirara Mining Corporation's strong revenues can be attributed to its sales in coal

and power generation. The demand for coal, both from the local and export markets remained

strong in 2011. As per the annual report, the local orders were given priority and export sales

were strategically managed since the export price toward the end of the year was affected by

the economic woes in Europe and US. Also, the company's strategies in shifting from the

expansion in the coal segment to the development of its power assets provide a multiplier

effect in the value of its finite coal reserves.

The company’s liquidity decreased as the current ratio and quick ratio dropped in

2011.On the other hand, the company’s efficiency in collecting its sales on credit and collection

policies improved compared to 2010. Also the company’s inventory turnover improved as the

company’s net sales increased in 2011.

The 2011 solvency ratios registered that the company’s solvency improved

tremendously. The company’s owner’s equity was able to finance its assets rather than the

creditors.

Meanwhile, the profitability ratios improved in terms of profit and earnings. Due to the

increase in the selling prices the consolidated Gross Profit made a healthier growth of 31%.

Also, the company was able to pay dividend which is double of 2010’s figure.

The company’s overall financial condition improved in 2011, through the company’s

healthy cash generation, efficient management of its resources and strategic planning.

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RECOMMENDATION:

Semirara Mining Corporation’s promising increase in sales is not enough to ensure its

future cash flows. The efficient management of the coal reserves is highly suggested, since as

years go by, mining will be difficult and costly as the mining goes deeper in the pit.

Future coal prices may affect the profit growth of the company. It is highly

recommended that the company’s mining costs and operational costs be efficiently managed

since this could affect future cash flows.

The company’s current business expansion is highly revered. The company’s reinvention

through its expansion in the power industry is expected to compound stakeholder’s value

earnings. It is highly recommended that the company achieve the reliability of the coal fuel

supply giving the company more competitive advantage over other coal-fired power plants.

The company’s effort in in improving the coal quality is highly acclaimed. Further

improvement of the coal’s quality will positively result to increased acceptance both in the

international and domestic markets.

The rehabilitation and continuous improvement of the power plants should be given

priority since its unscheduled shutdowns and minor setbacks impacts greatly the power

generation output and target sales may not be attained. This can be done with proper planning

and timing as to prevent unexpected setbacks.

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BIBLIOGRAPHY:

About Semirara . (n.d.). Retrieved March 17, 2013, from www.semiraramining.com: http://www.semiraramining.com/AboutSemirara.php

Energy Resources. (n.d.). Retrieved March 17, 2013, from Official Website of the Philiipine Department of Energy: http://www.doe.gov.ph/ER/Coal.htm

Open Mining Information. (n.d.). Retrieved March 2013, 17, from eHow Website: http://www.ehow.com/about_6509245_open-pit-mining-information.html#ixzz2NYCwISWg

Roque, R. (2000). Management Advisory Services. Manila: Roque Press.

Semirara Mining Corporation Valuations. (n.d.). Retrieved March 17, 2013, from Colfinancial Website: https://beta2.colfinancial.com/ape/final2_starter/quotes/pse_quote_D.asp

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APPENDICES

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APPENDIX A

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND YEARS ENDED DECEMBER

31 2011, 2010 AND 2009 AND INDEPENDENT

AUDITOR’S REPORT

38

APPENDIX B

TESTS OF LIQUIDITY:

Name of Test: Formula 2011 2010 Current Ratio Current Assets 14,124.00 = 1.25:1 10,265 = 1.48:1

Current Liabilities 11,303.00 6,932.00 Acid Test Ratio Quick Assets 8221 =0..73:1 6996 = 1:1 Current Liabilities 11,303.00 6,932.00

Quick AssetsCash + Short-term

investments+ 5005+3216 = 82213813+ 3183 = 6996

Receivables

Receivables Turnover Net Credit Sales 25,814 = 8.06 or 22,898 = 5.16 or

Average Net Receivables 3199.5 8 4,437 5

turnovers turnovers

Average Net Receivables Beginning Sales+ Ending Sales 3216+3183 = 3199.5 3183+1254 = 4,437

2 2 2

Ave. Age of Receivables 365 days 365 = 45.29 or 365 = 70.74 or

Receivables Turnover 8.06 45 days 5.16 71 days

Inventory Turnover Cost of Goods Sold 16,661 = 4.79 or 15,904 = 2.97 or

Average Merchandise

Inventory 3,475 5 5,358 3 turnovers turnovers

Ave. Merchandise

Beginning Inventory + Ending Inventory 4593+2357 = 3,475 2376+2982 = 5,358

Inventory 2 2 2 Ave. Age of Inventory 365 days 365 = 76.20 or 365 = 130.82 or

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Inventory Turnover 4.79 76 days 2.79 131 days

APPENDIX C

TESTS OF SOLVENCY:

Name of Test: Formula 2011 2010

Times Interest

Earned EBIT + Interest Expense 6009 +

458 = 14.12 3918 + 852 = 5.60

Interest Expense 458 times 852 times

Debt to Total Total Debt 20,820 = 0.58:1 18,155 = 0.60 :1

Assets Ratio Total Assets 35,628 30,495

Debt-Equity

Ratio Total Liabilities 20,820 = 1.41:1 18,155 = 1.47:1

Total Stockholder's

Equity 14,809 12,340

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Equity Ratio Total Stockholder's Equity

14,809 = 0.42:1 12,340 = 0.40:1

Total Assets 35,628 30,495

APPENDIX D

TESTS OF PROFITABILITY:

Name of Test Formula 2011 2010

Return on Sales Net Income 6,009 = 0.23 or 3, 918 = 0.17 or

Net Sales 25,814 23% 22, 898 17%

Asset Turnover Net Sales 25,814 = 0.78 22,898 = 0.84

Average Assets 33,061.50 times 27,380.00 times

Average Assets Beginning Asset + Ending Asset

35,628 + 30,495 = 33,061.5

30,497 + 24,263 = 27,380

2 2 2

Return on Assets Net Income 6,031 = 0.18 or 3,953 = 0.14

Average Assets 33,061.50 18% 27,380.00 14%

Average Assets Beginning Asset + Ending Asset

35,628 + 30,495 = 33,061.5

30,497 + 24,263 = 27,380

2 2 2

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Return on Stockholder's Net Income 6,031 = 0.29 or 3,953 = 0.36 or

Equity Ave. Stockholder's Equity 20,979 29% 11,112 36%

Ave. Stockholder's Beginning S. Equity + Ending S. Equity

14,809 + 12,340 = 20,979

12,340 + 9,884 = 11,112

Equity 2 2 2

Gross Profit Gross Profit 9,153 = 0.35 or 6,908 = 0.30 or

Rate Net Sales 25,814 35% 22, 898 30%

Net Profit Ratio Net Profit 6,031 = 0.23 or 3,953 = 0.17 or

Net Sales 25,814 23% 22,898 17%

APPENDIX E

TESTS OF PROFITABILITY:

Name of Test: Formula 2011 2010

Net Income 6,031 = 16.93 3953 = 11.1Earnings per

share Weighted Average 356.25 356.25

Number of Common Shares

Price-earnings Year-end Market Price per share of stock 221.4 = 13.08 185 = 16.67

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Ratio Earnings per share 16.93 11.1

Pay-out Ratio Cash Dividends 3,563 = 0.59 1,718 = 0.43

Net Income 6,031 3,953

Financial Analysis of Semirara Mining Corporation for the years ended December 2011 and 2010.

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