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Victorias Milling Company, Inc. (VMC) reported higher consolidated revenues for the fiscal year ended Aug. 31, 2025, but operating cash flow fell sharply as more cash became tied up in receivables, inventories, and other current assets—a working-capital squeeze that investors will likely monitor closely into the next crop year.
Top-line growth, profit softer
In its annual report (SEC Form 17‑A), VMC said consolidated revenues rose to ₱12.68 billion, up about 11.5% from ₱11.38 billion a year earlier, supported by higher power revenues from increased generation and export volumes, partly offset by softer refined sugar sales. Net income, however, declined to ₱1.35 billion from ₱1.55 billion, reflecting margin pressures and higher operating costs.
The company’s gross profit margin compressed to roughly 15% from about 16% previously, as cost of sales rose faster than revenues. Management pointed to elevated raw material costs and increased manufacturing expenses, alongside inventory write-downs tied to declining prices for sugar and molasses late in the fiscal year.
The key headline for cash: operating cash flow drops ~75%
While profitability remained strong on paper, the more telling shift came in cash generation. VMC’s net cash provided by operating activities fell to ₱546 million in FY2025 from ₱2.14 billion in FY2024—about a 74% year-on-year decline—primarily due to working capital absorbing cash.
The cash flow statement shows that, before working capital changes, operating performance was actually solid: net operating income before working capital changes increased to ₱1.89 billion from ₱1.77 billion. But the working-capital line items swung from being a cash source in FY2024 to a major cash use in FY2025, overwhelming the underlying operating inflow.
Working capital becomes the pressure point: receivables and inventories rise
The most notable change was the company’s build-up in receivables and inventories, which locked up cash that otherwise would have shown up as operating inflow.
Trade and other receivables increased materially year-on-year (the balance sheet shows ₱782.1 million vs ₱521.2 million), while the cash flow statement reflects a ₱320 million cash outflow tied to receivables during FY2025. Management attributed higher receivables to increased sales volumes in the fourth quarter and noted ongoing credit monitoring and collection efforts.
Inventories climbed to ₱1.385 billion from ₱1.045 billion, and the cash flow statement shows a ₱418 million cash outflow from inventory build. Management said inventory growth was driven largely by higher molasses levels in preparation for expanded distillery capacity—suggesting the build was at least partly strategic rather than purely demand-driven.
Other current assets also rose sharply to ₱1.157 billion from ₱527 million, contributing another ₱629 million operating cash outflow. The notes indicate these include items such as advances to suppliers, VAT-related accounts, and other prepayments—balances that can represent either expansion activity (e.g., prepaying for inputs) or timing mismatches that tighten near-term liquidity.
Taken together, these working-capital movements explain why cash conversion weakened even as reported earnings remained sizable. In FY2024, VMC benefited from a working-capital tailwind—particularly inventory reduction—whereas FY2025 reflected a reversal as the company built up operating assets.
What to watch: tightening cycle vs. strategic buildup
For market watchers, the central question is whether FY2025’s working-capital build is temporary and strategic (supporting expansion and future throughput) or persistent and structural (signaling slower collections, weaker pricing, or inventory overhang).
Receivables quality and collection cadence are an obvious watchpoint. The notes show an increased allowance for impairment losses on receivables and a larger impairment provision booked in FY2025 than in FY2024, reinforcing that credit management is a live issue as balances rise. If receivable days stretch or impairments accelerate, operating cash flow could remain constrained despite healthy accounting profits.
Inventory discipline is another focal area. VMC recognized inventory write-down and obsolescence provisions in FY2025 due to changes in market prices of refined sugar, molasses, raw sugar, alcohol and other inventories. In commodity-linked businesses, even small price moves can quickly change inventory valuation and cash recovery dynamics—particularly when inventories are intentionally built ahead of capacity expansion.
Other current assets—especially advances to suppliers and tax/VAT balances—should also be monitored for normalization. A jump of this magnitude can be consistent with ramping capex and procurement, but it can also foreshadow longer cash cycles if prepayments and tax credits take time to convert back into cash.
Investment and expansion continue, backed by strong balance sheet
Despite the lower operating cash flow, VMC maintained robust liquidity and a conservative leverage profile. As of Aug. 31, 2025, the group reported ₱1.56 billion in cash and cash equivalents and ₱976 million in short-term investments—about ₱2.54 billion in combined liquid assets. Total assets stood at ₱15.39 billion, while total liabilities were only ₱1.99 billion, and the company reported no outstanding bank debt as of year-end.
Cash was also deployed into modernization and capacity initiatives. Investing cash flow was negative, driven by ₱1.05 billion in additions to property, plant and equipment alongside net placement into short-term investments. Management described upgrades across sugar manufacturing, cogeneration, and distillery facilities—projects aimed at improving operational efficiency, reliability, safety, and long-term competitiveness, while acknowledging raw material supply security as a strategic challenge.
Profit engine shifts toward renewables
The filing also underscores a structural shift in the earnings mix. VMC’s segment reporting shows “Renewable Energy Operations” (combining power and ethanol) as the dominant contributor to FY2025 profits, while sugar milling delivered far thinner segment earnings despite larger revenues—highlighting the importance of the company’s byproduct-based renewables chain to overall profitability.
Rehabilitation status remains part of the backdrop
VMC continues to operate under corporate rehabilitation, with an SEC-appointed rehabilitation receiver, and notes that certain claims (including labor-related matters) remain under settlement or validation within the rehabilitation framework. Even so, the audited financial statements received an unqualified opinion from the external auditor.
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